Unemployment trends and economic impacts

Economics

Unemployment

If you loose your job for whatever reason-getting laid off, downsized, or because the demand for what you used to do has gone away, than you are considered unemployed. Unemployment is a problem that comes and goes with the ebb and flow of our modern financial cycle. During periods of recession, there will generally be higher levels of unemployment than during strong economic times. During rough economic times, companies will fail, businesses will downsize, services will run out of work, and factories will close. Most times thousands of people end up out of work and thus are unable to spend money on anything. And because no one is spending, goods and services are not bought, and businesses lay off more workers, and the dreadful cycle continues (U.S. Unemployment Rates, 2009).

U.S. workers lost nearly 663,000 jobs in the month of March, pushing the nation's unemployment rate to its highest level since 1983. This brought the job losses for the recession to 5.1 million, with two-thirds of these losses coming since November of last year. The jobless rate jumped to 8.5% from 8.1%, and is expected to top 10% by the years end. This downturn in the economy, which started in December 2007, is on track to out do the two longest recessions that we have had since the Great Depression. The government is hoping that the latest fiscal stimulus package will begin to kick in by the second half of the year. The hope is that the low business inventories will force a rebound in production and thus set the stage for growth (Reddy, 2009).

The job losses in this country are expected to continue through most of the year, with a recovery starting in early 2010. It has been reported that every sector of the economy has downsized jobs, except for healthcare. A broader look at unemployment in this country, which includes Americans who want work but have given up and quit searching for a job and people who want a full time job but have settled for part-time work, shows unemployment at 15.6%. This high percentage shows that there are major difficulties in finding work and it is affecting much of the labor force (Reddy, 2009).

A recession is a period of time during which production decreases and unemployment increases. According to John Maynard Keynes rigid prices are a cause of recessions. The focal point of his model is on managing macroeconomics. His model is known as keynesism, and centers on government interventions into the economy instead of the do nothing policies that seem to be preferred by many people. Keynesism has been highly criticized and is not the great cure-all of macroeconomics that was once thought, but does present some interesting points to think about. "It explains how an economy adjusts itself to equilibrium, which is a point in which added supply equals added demand, after an economic impact in a term that was so short that the prices do not even change at all" (What Causes a Recession to be a Recession, n.d.). The Keynes model focuses attention on the inventories of goods that companies have produced but have not yet sold. According to Keynes, fluctuations in inventories are what guide companies to increase or decrease production during time when prices are rigid and cannot be used to determine what should be done (What Causes a Recession to be a Recession, n.d.).

In order to understand this idea about inventories, it is necessary to understand that if the prices were to change and not be rigid, then it would be the prices and not the inventories that would guide companies in their decisions about production. For example, if prices were increasing, a company would know that their product is popular and that they should increase the production of it. And if the prices were decreasing, the company would know that their product is not selling well and that they should probably reduce its production. In an economy though where the prices are fixed, companies need another way of deciding whether they should increase or decrease production. This is where Keynes came to the conclusion that the key is to observe the changes in the inventories in order to drive production (What Causes a Recession to be a Recession, n.d.).

Over the years the change in the unemployment rate has been a good indicator of every economic downturn since 1929. When the change in unemployment has gone up more than 1%, we have always had a recession. Typically the change in the unemployment rate continues to go up for only a couple of months once a recession ends. The unemployment rate itself may continue to rise for several months, but the year-on-year change does not go up significantly. Looking at this is change in the unemployment rate will show how much better or worse the employment situation has gotten over the last year. This is not only a good measure for the job market, but it is also a very good measure for the state of the overall economy (Harrison, 2008).