International Economic Issue: Unemployment
Unemployment is among the main economic issues for every country in the world. It occurs when people do not have jobs, but are available to work and are actively searching for one (International labor Organization 4). The fraction of unemployment in any country is represented by the number of unemployed individuals divided by persons currently in the labor force. Unemployment rate is among the main indicators of the health of any nation. Macroeconomic fluctuations have a strong impact on the unemployment rate of any country. A healthy and booming economy has a high demand, and the rate of unemployment in that economy is most likely very low. In this economy, suppliers need resources in terms of manpower to satisfy this demand. The result is a decrease in the unemployment rate. On the other hand, decrease in demand makes people cut spending, making manufacturers and suppliers to cut back on production. The result is an increase in the unemployment rate. The health of the economies of different countries is different, hence different unemployment rates. This study will focus on the Zimbabwean economy, its unemployment rates, factors for unemployment, and what needs to be done to resolve this economic issue.
Zimbabwe is among the countries that have for long experienced economic crises. The economy has been worsening over time, making it incapacitated to absorb the growing labor input (Ncube 168). The population has increased more than two times since the year 1970, and the numbers of people in the workplace seems to continue decreasing. Although the causes of unemployment date back to pre-colonial period, unemployment in Zimbabwe was not among the major economic issues until the year 2000 when the economy experienced severe economic crisis that lasted until the year 2009. Companies were closed, and industrial capacity utilization declined dismally, which in turn resulted in an increase in the unemployment rate.
Causes of the unemployment rate in Zimbabwe
The primary cause of high unemployment rate in Zimbabwe is poor implementation of macroeconomic policies such as monetary and fiscal policies. There exist a relationship between aggregate change in price levels and employment. A policy that will lead to hyperinflation will also lead to increase in the rate of unemployment. When the government of Zimbabwe increased money supply in the economy by excessive printing of money, this action stimulated demand to the point that it pushed capital market and labor market beyond their long-run capacity. The result was hyperinflation and high nominal interest rates. It became so difficult to maintain companies, making most of them close down. All the workers who depended on these companies lost their jobs. This action created a cycle of unemployment since the workers who were employed by these workers who lost their jobs also lost their jobs.
Another cause of unemployment is the increase in the country’s population relative to the ability of the economy to great jobs. People migrated to urban areas with no job success.
Other causes include the negative investment perceptions caused by government programs like the partial application of the indigenization law or the fast track land reform programs. Land reforms affected agricultural sector particularly in tobacco, not to mention that this sector accounted for about a third of the country’s foreign-exchange earnings.
Policies that the government should employ to reduce unemployment
The Zimbabwean government has to apply the Keynesian model by increasing the level of its spending. This action increases the aggregate demand and also can have an effect of the multiplier on equilibrium national income (Keynes chap 17). An example of how the government can raise the current expenditure is through increasing pay levels in the health service and education sector. In addition, the government can expand spending on capital projects for example spending on new hospitals, roads or on other major infrastructural projects. All these spending aim at boosting the economy, which can in turn create more jobs.
The government can also lower taxation. Lowering taxes tends to stimulate economic growth. Low taxes means that companies will have higher disposable income than before. They will then spend this money in expanding their businesses. This action will increase demand, and these companies will have to hire more people, creating jobs. Likewise, if these companies decide to save this money in banks instead of spending, the banks will loan other people this money, and the borrowers will spend it. This action will boost the economy and create jobs.
The third policy should involve lowering the real interest rates. This action will reduce the cost of borrowing, encourage demand for credit, increase customers real disposable income, and reduce saving. All these activities will in turn boost demand and consumption. In addition, since the marginal cost of investment will fall, this policy will encourage firms to invest (Corsetti 284). These firms will then hire more workers to boost the level of production, which means creation of jobs.
Works Cited
Corsetti, G. “International Dimensions of Optimal Monetary Policy”. Journal of Monetary Economics 52. 2 (2005): 281-305. Print
“International Labor Organization”. Resolution concerning statistics of the economically active population, employment, unemployment, and underemployment, adopted by the Thirteenth International Conference of Labor Statisticians. 1982. Web 6 Dec 2014
Keynes, Maynard. “Why Money Matters”. General Theory of Employment, Interest and Money. 1936: Chapter 17. Print
Ncube, M. Employment, unemployment and the evolution of labour policy in Zimbabwe. Zambezia 27. 2 (2000): 161-93. Print
