Introduction
Unemployment in America has been a cause of great economic concern for the government and people of America. Measuring the correct unemployment rate depends on a number of factors, which need to be analyzed for taking policy decisions by the Fed and other government agencies. Summaries of three articles that appeared in the leading publications are given below in the attempt to shortlist the reasons behind the dwindling unemployment rate and the reasons behind the present economic condition that has made it difficult for the researchers and the government level stakeholders to predict the movement of the economy for the benefit of the job seekers and the economy overall in America.
Summary of Article 1
Economist.com article dated May 8, 2015, titled “America's unemployment rate: An incorrect dial?” welcomes the news from the Labour Department that the Federal Reserve may increase short term interest rates on the preconditions of full employment and 2% rate of inflation attained. Out of many contributors for this seeming rosy picture of the economy has been a decrease of working-age population from 66% to 63% after the financial crisis. Relatively this is a temporary factor, impressing statistics, as structural factors have played the leading role, such as retirement of the baby-boomer age-group and increasing number of students in the colleges. These factors explain the reason behind reducing unemployment rate and decline in the Fed’s aim of long-term reduction in unemployment rate (Economist.com “America’s Unemployment Rate,” par. 1-2).
Other indicators of measuring unemployment rate include participation rate of the labour-force and approximation of sidelined Americans not participating in joining, as the economic scenario does not permit it. The IMF and Fed analysts feel that a robust job market can strengthen the jobbers’ participation rate, to help in deriving the actual unemployment rate, assumed to be nearer to 6.6% than the official figures of 5.4% (Economist.com “America’s Unemployment Rate,” par. 3).
Another way of reducing the unemployment rate, according to economists, has been an increase in the volume of fixed investment but off late, this alternative has not given desired results. It is expected that at least 2 million Americans have not been included in the unemployment data, used by Fed to fix interest rates. It does not present a rosy picture of the economy (Economist.com “America’s Unemployment Rate,” par. 4).
Summary of Article 2
Another article appearing on 15th Feb, 2014 on the same topic, “Unemployment in America -- Closing the gap,” provides a dismal picture of the economy. By December 2014, job market came crashing down and remained weak even till the month of January 2015. Figure-wise, the situation was not alarming, as the unemployment rate was almost nearer to the mark fixed by Fed to reduce interest rates ( Economist.com, “Unemployment in America,” 1).
The statistics of the job market have complicated the picture, as in the perception of Fed, data indicates the role of stagnant supply than the rising demand for labour, playing the lead role in showing a rosy picture of the economy, which is not actually the case. It is evident from the remarks of Janet Yellen, chairman of the Fed, on Feb. 11 that the labour market has not completely recovered from the shocks of recession. Other factors are playing their part in making the economic picture less transparent than the unemployment rate, forcing the Fed to reconsider and analyse those factors (Economist.com, “Unemployment in America,” Par. 2-3).
Research still finds the data is conveying something significant although it may not be encouraging. It derives that America’s supply market has stalled for the long term. It means that the economy is functioning nearer to optimum potential, leveraging from available capital and labour. It indicates that pressure on Fed is less severe than assumed by it. It is not easy to find the actual gap between the real and possible performance of the economy. Again, measuring parameters can be various, making it difficult to reach a balanced point-of-view about the economic condition for helping Fed to take important decisions. Data indicates reduction in employment and increase in unemployment rate, signalling an increase in the output gap. This variation in the measurement has led the Congressional Budget Office to review its estimates of the country’s output, the size of the output gap, which is just a little above 4% of the GDP, considering the possible causes stated above. This output gap had been 10% of the GDP, had the figures not shrunk since 2008 (Economist.com, “Unemployment in America,” Par. 4-5).
Output gap might even be overly stated because those job-seekers, who prefer not searching jobs, are not contacted any more by companies. Fed can derive critical inputs from this fact, as there is no additional cut back on salaries. A comparison of this situation was made by Ricardo Llaudes of the European Central Bank in 2005, indicating difference between short-term unemployment predicting inflation better in European economies than total unemployment. In the American case, it was never so but off late, American economy is also showing similar trends. The research by the Federal Reserve Bank of New York also affirms that short term unemployment rate is a better indicator than long-run, impacting the rate of inflation. Other factors may include reducing commodity prices and a robust dollar. It denotes that wages may not be increasing but the unit labour value that matches wages for output is showing nearly the same rate. It does not provide any inkling to the FED to take a decision (Economist.com, “Unemployment in America,” Par. 6-7).
Fed attempts to encouraging inflation in its aim of cutting down unemployment may not serve the purpose. It should worry about long term unemployment which shot up to 24% from 18% in 2010. Permanently unemployed Americans are finding it hard to re-enter the job market. It is the reason why Barack Obama made a request to the companies to treat these jobbers on par with others, searching job (Economist.com, “Unemployment in America,” Par. 8-9).
Summary of Article 3
The Economist dated 13 April 2015 describes in “Why American wage growth is so lousy,” the causes why wages are not increasing in America. Although unemployment is reducing but it is not showing on the board desired results. Current employees are not benefitting to bargain better wages because American companies are not worried on this count to retain the workforce by increasing their wages (The Economist explains, “Why American wage growth is so lousy,” Par. 1).
Current trend has its roots in the recession of 2007-09 when employees were shown pink slip by the companies to cut costs rather than reducing their salaries. Workload to senior employees increased. After the recession, it created a condition of ‘hangover’. Not pushing employees to increase output, management let the situation settle down by adjusting high wages over time, and not raising wages, as they were already high (The Economist explains, “Why American wage growth is so lousy,” Par. 2).
Evidence indicates that wagers are not asking higher wages because of a reform related to unemployment-insurance scheme in 2013, reducing the time period of unemployment benefits. As unemployment incentives got shrunk, wagers stopped asking higher wages to get employed. Companies leveraged this situation by going on a hiring spree. Actually, the number of part time job seekers has increased hugely, striving to get full time employment relatively to before recession time The Economist explains, “Why American wage growth is so lousy,” Par. 3-4).
Conclusion
As is evident from the summaries of these articles, unemployment is not just the game of demand and supply of workers. Schemes like unemployment-insurance, short-term and long term unemployment factors, impressing unemployment and impacting the rate of inflation, structural factors, sluggishness of the economy, changing behaviour of investment trends, causes behind the output gap, and changing company management trends have played a role in creating a complicated situation in the American job market.
Works Cited
“America's unemployment rate -- An incorrect dial?” The Economist 8 May 2015. Accessed 18 April 2016 at <http://www.economist.com/blogs/freeexchange/2015/05/americas-unemployment-rate>.
“Unemployment in America -- Closing the gap.” The Economist 15 Feb. 2014. Accessed 18 April 2016 at: <http://www.economist.com/news/finance-and-economics/21596529-americas-labour-market-has-suffered-permanent-harm-closing-gap>.
“The Economist explains -- Why American wage growth is so lousy.” The Economist 13 April 2015. Accessed 18 April 2016at: http://www.economist.com/blogs/economist-explains/2015/04/economist-explains-12
http://www.economist.com/blogs/economist-explains/2015/04/economist-explains-12
