Teach me about unemployment.

[Eukaryote]

If I was a government head, one of my priorities would be keeping unemployment low. It wouldn't be one of the most important things I have in mind but it would be part of my plan.

So I was hoping you could all satisfy my curoisity and tell me what you know about what causes unemployment, how to get rid of it, and what the costs of getting rid of it are.

 

[Mowque]

So I was hoping you could all satisfy my curoisity and tell me what you know about what causes unemployment, how to get rid of it, and what the costs are.

1. Not having a job causes it

2. getting a job fixes it

3. Everything you do is a cost, and since you have no income it is a cost coming right out of your savings.

 

[GoodGame]

Obviously population trends vs. percent growth of the economy is the major cause of unemployment. Other causes are lack of training in the unemployment pool, or lack of employee mobility (employees might not be able to relocate to regions of economic growth).

In practice, 100% employment is impossible to achieve because the unemployment pool might not be trainable to fit in with current growth trends (e.g. some classes of disabled peoples might not have opportunity to fit in with certain fields). The main way to keep unemployment low is to offer corporate incentives for expanding operations, offer incentives for brand new industries to seed, focus training and schooling in areas that the economy is growing, centralize information about employment and make it available to the unemployed, etc..

 

[Godwynn]

If I was a government head, one of my priorities would be keeping unemployment low. It wouldn't be one of the most important things I have in mind but it would be part of my plan.

So I was hoping you could all satisfy my curoisity and tell me what you know about what causes unemployment, how to get rid of it, and what the costs are.

There are different types of unemployment. There is frictional (workers moving from job to job), structural (workers do not have the qualifications that employers are looking for), classical (labor is too expensive), and cyclical (there is no demand.)

Unemployment cannot be "gotten rid of" so to speak. There will always be unemployment. I believe that during the early 1940's in the United States during the war years unemployment reached a low of 1.2%. The trick is to keep unemployment manageable. Currently I believe the baseline is ~5%. Anything below that and I hear the talking heads on TV discuss economic "overheating" and anything above that and they are chattering about an economic "cooling."

The costs are many. The government loses out on taxes earned by the workers. Local business lose out on the money they would have earned had a person had a job (for example, when a local factory in my hometown closed, small restaurants that survived on their lunch hours closed as well.) I'm sure there are psychological and stress related effects (El_Machinae would probably know.)

1. Not having a job causes it

2. getting a job fixes it

3. Everything you do is a cost, and since you have no income it is a cost coming right out of your savings.

Indeed.

 

[Whomp]

If I was a government head, one of my priorities would be keeping unemployment low. It wouldn't be one of the most important things I have in mind but it would be part of my plan.

So I was hoping you could all satisfy my curoisity and tell me what you know about what causes unemployment, how to get rid of it, and what the costs of getting rid of it are.

Causes of unemployment includes things like excess capacity and inventory build up. Until those excesses are worked off a business will have a difficult time staffing up.

Take the housing industry in the United States. Historically, we've averaged 8 months supply of homes in the U.S. and 62% of the population owns a home (demand). Today that number runs 11 months supply and 66% own a home (demand). Until that excess capacity and inventory works itself off there's really zero need for new housing starts.

So what happens is consolidation of the industry will then occur generally through mergers, acquisitions, and bankruptcies.

Sometimes, the political consequences of consolidation are negative. Unemployment tends to increase as firms merge and improve the economies of scale, or as firms go out of business. Because of the negative political implications associated with consolidation, history suggests that politicians tend to fight the forces of economic consolidation with bailouts and protectionism (aka "beggar thy neighbor" strategies).

This is already in place with the T.A.R.P. as legislators are telling banks how they should lend money with taxpayer dollars. The financial industry consolidated 26% from 1989-1992 so at only 9% consolidations right now we have a long, long way to go for these types of businesses.

Another way to view this is through total bank failure rate as a per cent of deposits. In 1989-1992 all years were greater than 3% and last year was only ~2.8% for failures. Look for more to come.

 

[kronic]

The easiest way to get rid of unemployment sadly is to manipulate the statistics.

 

[Hakim]

What Godwynn said. Any attempt to push unemployment down to 0% will soon cause the economy to overheat. The salaries will spike without corresponding increase in output. One thing that happens when salaries goes up is that prices will follow (due to higher consumption and perhaps other reasons) and the central bank will eventually raise interest rates in an attempt to cool down the economy. That's my understanding from news papers etc, but there's probably also a lot of other factors that complicates things.

 

[Eukaryote]

What about giving tax credits to companies that create jobs, does that work?

 

[Theige]

What about giving tax credits to companies that create jobs, does that work?

Yea, it helps.

I think almost all business expenses, including labor costs, are tax-deductible to some extent.

 

[Camikaze]

There are different types of unemployment.

You forgot hard core unemployment! This is when people are unemployable.

Also, what economies try to aim for is the natural rate of unemployment. There is a basic inversely proportional relationship between inflation and unemployment (as unemployment goes down, inflation goes up), and this natural rate is the equilibrium point between the two- where unemployment and inflation are steady. If unemployment goes below this, according to the Non-Accelerating Inflation Rate of Unemployment, this equilibrium point will gradually rise, meaning that you need a higher rate of unemployment to stabilize inflation. So basically, the equilibrium point is the point at which unemployment creates no acceleration in inflation, and if unemployment goes below this level, it just leads to higher inflation in the long-term.

 

[GenMarshall]

In my view, there are three kinds of unemployment.

The traditional unemployment, in which a worker does not hold a job and is counted in the Department of Labor unemployment statistics.

Discouraged worker, an unemployed worker who have given up searching for a job. Unfortunately, these workers are not listed in the unemployment statistics in the DoL.

Underemployed, workers who eather work in a job that requires less skill than the person actualy trained and educated for (example: A chemist working in a burger joint) and/or a worker who works On-Call or Part Time, yet desires to work Full Time.

 

[Cutlass]

Structural unemployment, that is when there are simply not as many jobs as their are people able and willing to work, as a more or less permanent problem results from persistent low business investment. When investment is low, low unemployment can push wages up at a faster rate than productivity increases. When that happens inflation results and either the government acts to tighten credit, which results in less investment, or businesses reduce investment on their own. Either way unemployment rises. If you want very low structural unemployment (some frictional unemployment will always exist, and nothing can be done about it. The unemployment rate did not hit 0 at the height of WWII) then you have to have higher constant business investment that has existed in the US in the past century.

 

[lovett]

Also, what economies try to aim for is the natural rate of unemployment. There is a basic inversely proportional relationship between inflation and unemployment (as unemployment goes down, inflation goes up)

Not in the long-run there aint.

 

[Camikaze]

Not in the long-run there aint.

Sorry, I'm just going on what I know. Do governments actually aim for the natural rate of unemployment in the short run, hoping to shift the equilibrium to a lower rate of unemployment?

Also, I suppose the Phillips' Curve is a bit too simplistic and generalised.

 

[Cutlass]

Sorry, I'm just going on what I know. Do governments actually aim for the natural rate of unemployment in the short run, hoping to shift the equilibrium to a lower rate of unemployment?

Also, I suppose the Phillips' Curve is a bit too simplistic and generalised.

Depends who runs the government. A too "pro-business" government wants higher unemployment in order to suppress wages.

 

[Integral]

Sorry, I'm just going on what I know. Do governments actually aim for the natural rate of unemployment in the short run, hoping to shift the equilibrium to a lower rate of unemployment?

Also, I suppose the Phillips' Curve is a bit too simplistic and generalised.

There's a little joke in the Fed....NAIRU: "Nothing About Inflation is Related to Unemployment", referring to the unusually low unemployment and low inflation combination of the mid-1990s. Despite that, the Fed does aim to keep unemployment around the natural rate (which is similar to, but distinct from, the NAIRU).

The Phillips curve relationship has some merit in the short run, but Friedman, Phelps, Lucas and others showed that the relationship breaks down in the long run.

Regarding the types of unemployment, Godwynn's post was satisfactory. Right out of the Econ 101 textbooks.

 

[Archbob]

Structural unemployment, that is when there are simply not as many jobs as their are people able and willing to work, as a more or less permanent problem results from persistent low business investment. When investment is low, low unemployment can push wages up at a faster rate than productivity increases. When that happens inflation results and either the government acts to tighten credit, which results in less investment, or businesses reduce investment on their own. Either way unemployment rises. If you want very low structural unemployment (some frictional unemployment will always exist, and nothing can be done about it. The unemployment rate did not hit 0 at the height of WWII) then you have to have higher constant business investment that has existed in the US in the past century.

No, I don't think you actually understand what structral unemployment is, what your referring to is actually known as classical unemployment. Classical unemployment usually happens because of the following:

In this case, like that of cyclical unemployment, the number of job-seekers exceeds the number of vacancies. However, the problem here is not aggregate demand failure. In this situation, real wages are higher than the market-equilibrium wage. In simple terms, institutions such as "the minimum wage" deter employers from hiring all of the available workers, because the cost would exceed the technologically-determined benefit of hiring them (the marginal product of labor). Some economists theorize that this type of unemployment can be reduced by increasing the flexibility of wages (e.g., abolishing minimum wages or employee protection), to make the labor market more like a financial market.[citation needed

Things like strategic outsourcing and globalization will generally result in classical unemployment for western nations as jobs move overseas.

Structural unemployment is when employees fail to keep up with the times and becomes obsolete due to technology usually. For instance airlines killing the need for that many railroads so now railroad operators are out of a job. However, the new opportunity opens up vacancies in airlines. This usually happens to older workers who don't acquire new skills. Its also happens when business invests alot in certain technologies like robotics so many factory workers become obsolete and are no longer needed.

And unemployment will never hit zero. There are always a certain number of people who simply don't want to work or are unable to work.

 

[MagisterCultuum]

I say the best way to learn about something is from experience. Therefore, you're fired.!

 

[Masquerouge]

There are different types of unemployment. There is frictional (workers moving from job to job), structural (workers do not have the qualifications that employers are looking for), classical (labor is too expensive), and cyclical (there is no demand.)

I think there is one more kind, or maybe it's included in one of your 4 types and I didn't get it: voluntary.

Some people do not want to work, for various reasons. A consequence of that is that your optimal unemployment rate will never be zero.

 

[mrt144]

If I was a government head, one of my priorities would be keeping unemployment low. It wouldn't be one of the most important things I have in mind but it would be part of my plan.

So I was hoping you could all satisfy my curoisity and tell me what you know about what causes unemployment, how to get rid of it, and what the costs of getting rid of it are.

Why would you want to keep unemployment low in any place but your own constituency? Unemployment affects a small part of the working force yet so much is made of it politically. I understand what it is like to be unemployed having been so quite often when I was younger but to sell the 80% of currently employed people (by any measure) up the river for the benefit of a small amount of unemployed people is both wrongheaded and wronghearted.