One aspect of an unhealthy economy involves the lack of employment for those individuals who wish to work. Unemployment is defined as those participants in the labor force that have the inability to

Source A

Unemployment

One aspect of an unhealthy economy involves the lack of employment for those individuals who wish to work. Unemployment is defined as those participants in the labor force that have the inability to find jobs. There are certain exceptions to being counted as being unemployed, such as a stay-at-home parent who devotes his/her time to being a caregiver or an individual who donates his/her time to charity work. An important aspect to understanding how the level of employment affects a nation’s economy is that to get the maximum economic output from the available production capacity, full employment is needed.

According to recent US Department of Labor statistics, a total of 6.5 million people are currently unemployed, which is 5.5% of the US labor force. Approximately 12% of the US population lives below the poverty line. However, documentarian director Michael Moore, an individual who has extensive experience in chronicling the unemployed across the USA, believes that the Labor Department figures are inaccurate. He believes there are closer to 13 million unemployed individuals, approximately 11% of the US labor force, and that 20% of the US population live below the poverty line. Unfortunately, it is difficult to keep concrete numbers because the government cannot account for all individuals across the USA. Those individuals who are homeless cannot be counted as there is no way to contact them.

There are three primary types of unemployment. One is cyclical and related to the business cycle when GDP contracts and workers are laid off due to declining aggregate demand for their labor. Another is structural when there is a mismatch of labor skills to job vacancies. This type of unemployment is often caused by economic reforms and the introduction of new technologies or through workplace downsizing. Frictional is another type of unemployment and results from individuals moving to other jobs, those seeking their first job, or from those who rejoin the work force. This is just normal labor market turnover. Seasonal unemployment is results from a loss of jobs due to the end of a specific event; examples include the winter holiday or agricultural laborers.

Arthur Okun measured the relationship of the production possibilities curve and unemployment. Okun’s law can be stated as saying that for every one percentage point by which the actual unemployment rate exceeds the «natural» rate of unemployment, there is a 2 to 4 % GDP Gap. That is, unemployment above the inflation-threshold unemployment rate corresponds to real gross domestic product below potential output.

Source B

Unemployment

Often when a nation faces high unemployment, its economy is not operating at full production capacity and its labor force face a number of problems. These problems include a lower standard of living and a reduction in the consumption of resources. A decline in the labor market leads to a loss of skills for the long-term unemployed and this usually leads to lower wage growth. Families of the unemployed suffer economic and social hardships. There is also a social stigma attached to unemployment. The longer a person is unemployed the harder will be for them to ever set foot in the productive world again. There is an increase in the taxation burden as taxpayers fund social security payments. It can also lead to a less equal distribution of income. Other social costs include the rising crime rates, family breakdowns, loss of dignity, drug use and alcoholism.

One of the reasons so many people are unemployed is due to DOWNSIZING. Downsizing is when an employer reduces its labor force usually by a large amount all at the same time for the sake of maintaining or increasing company profits. AT&T reduced its workforce by 40,000 people and made $16 million USD profit. IBM reduced its workforce by 60,000 people and made $2.6 million USD. At the end of 20^th Century, many large companies began the process of downsizing its workforce. However, the news media began to report these large reductions in force figures across the USA. The cover of Newsweek had mug shots of CEO’s with the title “Corporate Criminals.” Many large companies realized that if they were going to use downsizing policies, they would have to lay off people in smaller amounts.

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