Business cycle and Unemployment
Business cycle refers to economic patterns over time occasioned by repetitive contractions and expansions. The patterns are as a result of growth or increase in economic activities and slow down of the growth rates, or in extreme conditions, negative changes in the size of the Gross Domestic Product, measured year to year. Ideally, the economy would expand rapidly to a point where it peaks the contracts to a low point (the trough) before growing again. Expansion results to a boom while contraction leads to a recession, a period of economic challenges. The different stages of the business cycle have different effects on unemployment. An expanding economy will create opportunities for new entrants in the job markets as well as people willing to change jobs. A contraction, on the other hand, will have a completely opposite effect. This paper will discuss the business cycle in relation to unemployment.
Red line = GDP growth rate in percentages in Florida
Blue = Unemployment in Florida
The above two graphs give a relationship between unemployment and GDP growth. The period between 2007 and 2009 was characterized by a great depression commonly known as the 2008/09 economic meltdown.
During the same period, unemployment rates were very high, hitting 11.3% in Florida and a pick of 9.6% overall in the United States. The relationship is that contractions will lead to loss of jobs pushing the unemployment rates very high.
The study of unemployment and economic growth was first documented by Arthur Okun in what came to be known as Okun law. He explained that “When unemployment falls by 1% GNP rises by 3%”. However, this Okun observation has been touted as an empirical observation but now a practical case scenario. For example, during the economic down turn, as show by the graphs, increase in unemployment was caused by contraction of the economy. In that scenario, the Okun law was broken.
In the year 2010 the United States economy started moving from stagnancy in a very slow pace. Very interestingly, also, unemployment rates started decreasing. The main cause should have been the improved demand for employees by US firms and companies trying to recover from recession.
The growth in Florida after the recession is faster than the national average, but unemployment is still at high levels as it takes more time for the economy to absorb the bulk of the unemployed people.
The US government also came up with a strategy called tapering, aimed at rescuing liquidity in the financial markets. The different approaches used to rescue the economy were showing results and the companies were opening up for people to work.
A fine understanding of low unemployment rates during periods of growth can be derived from the fact that consumption expenditure starts flowing to consumer pockets making them demand for goods initially relegated to non basic goods. The companies respond by increasing production projections as they expect more people to purchase goods. In the end there rises a need for more employees and a faster absorption of fresh graduates.
Teenagers versus 20+
It was harder for teenagers to get jobs than for young college graduates above twenty years. The main reason for this observation was that teenagers and young adults were fighting for the same chances since the economy could not employ the young adults at a rate that could match the rate of production of young graduates.
Faced by the dilemma of hiring teenagers or young adults, human resource managers chose the young adults as they were available all year round. Mark you, teenagers flock the job arket during school holidays as they look for internships.
In the last one year, for example, unemployment rate for 16-19 year old teenagers averaged 20.5% compared to 11% for young adults, between 20-24 years. ("A-10. Unemployment rates by age, sex, and marital status, seasonally adjusted"). That means there are many unemployed young people in the United States.
The rate of unemployment is higher for African Americans than white American. The situation is worse for young blacks. For this group, unemployment rate is 12.1% (as of January 2014) as compared to 5.7% among the young white Americans ("Unemployment rates are higher for young people, minorities".
A similar case is observed across people of different ages. On average, the unemployment rate is twice as among Africa Americans or blacks as compared to the white community.
The difference is blamed on college education since the white population has better access to college education compared to the black population. The Asian population has very low unemployment rates at an average of 4.5% compared to the white and black population.
There is no noticeable difference between the unemployment rates of men and women in the white population. However, men in the black community are more unemployed that women. It is easier for a black woman to get a job than a black man. On the other hand, there isn’t a difference in employment rates between Asian men and women. ("Table A-2. Employment status of the civilian population by race, sex, and age")
The economy will remain on track to full recovery in the next two years. The rate of employment will increase and it will become easier for a college graduate or a diploma holder to get a job fresh from college.
Though unemployment rates will be lower, the patterns between blacks and whites will continue due to different levels of access to college education. That means that college education contributes to the ease of getting a job in the United States.
On my part, I think that good academic grades will help me get a good job. My understanding is that qualifications help one to compete out other job seekers after college.
As illustrated in the economic analysis on unemployment and GDP growth, the Okun law does not apply in all scenarios. Unemployment, therefore, is increased by contraction of the economy. Other factors define unemployment, as shown by the differences in the unemployment rates drawn on basis of gender, ethnicity and age.
"A brief history of U.S. unemployment." The Washington Post. N.p., n.d. Web. 12 Oct. 2014.
"A-10. Unemployment rates by age, sex, and marital status, seasonally adjusted." U.S. Bureau of Labor Statistics. N.p., n.d. Web. 12 Oct. 2014.
McConnell, Campbell R, Stanley L. Brue, Sean M. Flynn, William B. Walstad, and Campbell R. McConnell. Macroeconomics 19e: Principles, Problems, and Policies. Boston: McGraw-Hill Learning Solutions, 2012. Print.
"Table A-2. Employment status of the civilian population by race, sex, and age." U.S. Bureau of Labor Statistics. N.p., n.d. Web. 12 Oct. 2014.
"Unemployment rates are higher for young people, minorities." PBS NewsHour. N.p., n.d. Web. 12 Oct. 2014.