Unemployment causes, trends, and economic impacts

Unemployment rate in the United States has fluctuated between nine and ten percent for well over two years now ("Labor Force Statistics"). That rate is more than double what it was a mere ten years ago, putting millions more Americans on the unemployment compensation rolls. More alarming than the numbers is the general feeling of pessimism that has enveloped the country as the population wonders when the economy might turn around. To most of the unemployed there appears to be no end in sight. Many of these unemployed are not even receiving any unemployment compensation from the government. At the end of March 2011, only 5.8 million of the estimated 13.2 million unemployed were collecting unemployment insurance (Hagenbaugh).

Of course these statistics were key components of the 2008 election won by Barack Obama. All candidates realized the importance of the economy in the election and each drew up a plan to deal with it. Obama's idea that the government should provide the necessary economic stimulus was assailed as a "big government approach" to a problem that many felt should be allowed to play out naturally. However, the implosion of the housing market and the revelation of subprime lending issues, forced many of these dissenters to admit strong government intervention was indeed necessary.

Obama pushed for his economic plan consisted of several different components, which were all designed to spur economic activity and private sector hiring. The first part of his plan was one he felt would be embraced by all sides of the debate: tax cuts. Obama's tax cuts were not focused on individual taxpayers, but on the payroll taxes that businesses pay. The Congressional Budget Office had concluded that payroll tax cuts were the most cost-effective way to increase hiring. Obama coupled this tax cut approach with tax credits for businesses who hired new employees as well as reimbursing them for Social Security taxes up to $500,000 (Chan).

But the stimulus plan Obama proposed included more than just tax incentives as he aimed to get Americans back to work immediately. In order to infuse money directly into the economy quickly, Obama proposed giving cash to state and local governments that were being squeezed by the difficult economic times. This money was intended to be used for infrastructure spending in the form of school renovations and building, road construction, and bridge repair. Money was also set aside for electricity grid modernization and renewable energy research and investment. For those who would continue searching for a job, there was ample money to provide generous extensions to unemployment insurance.

Obama felt that the spending portion of the plan was more important for jump-starting the economy than were the tax cuts, so he allotted significantly more money to that part of the plan, by a nearly two to one margin. The Republicans in Congress would have much preferred to distribute the funds almost exclusively through tax breaks for businesses and individuals. Altogether, the cost of this plan was $825 billion and the Obama team projected that it would save or create up to four million jobs (Wolf). As the economy has continued to struggle to maintain any momentum, the idea to stimulate the economy even more with another round of stimulus money has been debated, but, thus far there has been little agreement in Congress on how to move forward.

Critics of Obama's plan point to the fact that, instead of lowering the unemployment rate as promised, it has continued to hover around the 9-10% mark. By the President's reckoning, the unemployment rate should have been below seven percent by now with the stimulus money in full effect. In fact, even without any stimulus, the unemployment rate was projected to be under eight percent by now, more than a full point lower than it has been with the stimulus (Blodget).

While many people point to the fact that the Obama plan sought the wrong type of stimulus, favoring direct government spending over tax cuts for corporations, others felt the President had simply compromised too much by not seeking more money for his projects and just pumping money into the stagnant economy. These people subscribe to the economic theory of Franklin Roosevelt who mounted huge public works projects like the Tennessee Valley Authority to alleviate the misery of the Great Depression. But others believe that it is the private sector, not the government, that is responsible for economic growth and, therefore, should be the leader of the recovery. These people have pushed for larger tax cuts for all Americans, but especially a cut in corporate taxes to stimulate business growth and create new jobs.