Impact of Unemployment on the Long Term
The unemployment is defined as the state of looking for a job and not being able to get a job. The unemployed people are willing to be in the labor market; however, the economies cannot produce enough jobs for all the workers. The unemployment might continue the long term, especially after the recession times in the national economies (Krueger, Cramer and Cho 230). The ability to create new jobs is very essential for the national economies. The recession times in the world cause an increase in the unemployment rate, and some of the unemployments are long-term unemployments. The most recent recession started in 2007 resulted in the loss of 7.9 million jobs in the world. The unemployment rate is above 10%, even in the developed countries. The developed countries have implemented recovery policies and the number of the jobs in their economies has started increasing slowly (Isidore 1). However, the lack of satisfying domestic demand in these countries has limited the number of employment created.
This paper will analyze the negative influences of the unemployment on the long term on the national economies. The long-term unemployment gives us three main negative impact on the national economies and the job markets: 1- Some workers quit looking for a new job and prefer staying out of the labor force, 2- The qualified workers might accept working in some part time jobs or some other jobs where they cannot use their full potential and the productivity of the labor decreases, and 3- The new graduates might have relatively more difficulty to enter the job markets (Mitchell 3). This paper will develop a scientific approach to the long-term unemployment through the three primary negative impacts.
The unemployment on the long run means that the national economy has some structural problems and cannot produce enough jobs for the workers. Considering that entrepreneurs are the ones who provide jobs for the people when the entrepreneurs do not prefer increasing their investments, the number of the available jobs in the economy decreases. Therefore, the recessions caused a structural break in the developed countries' economies, and the investors have become hesitant to increase their investments or continue their businesses at the same level with the pre-crisis time. This structural break has created a negative influence on the labor markets. Naturally, the income generation cycle in the economy has got damaged and sequentially the economic recession has spread to the all markets in the economy (Krueger, Cramer and Cho 291).
The structural break in the economy caused an adverse impact on the labor markets. Especially, the bankruptcies of the large financial institutions and the large industrial companies caused unemployment among the qualified workers. The increasing unemployment among the skilled employees in the economy has caused a negative psychological influence on the other workers (Currie 2). Managing to get a graduate degree from a university was important for the new starters in the labor market; however, observing that the qualified workers are unemployed, or they are getting part-time jobs because they cannot find high-quality jobs have created a negative feeling for all the potential qualified workers (Mitchell 3). Even it is possible to claim that the average wages have fallen in the developed countries. The structural brake in the developed economies started in 2007, and it is still continuing although the governments have spent a large amount of financial resources on the recovery policies. The recovery in the labor markets could not reach the desired increase in the job creations in the developed countries. This situation placed a new big problem for the countries: the continuing unemployment in the long term.
The economists use the Phillips curve to explain how the relation between unemployment and prices work in the short run. According to the Phillips theory, when the prices increase in the short term, the economy expands, and the number of available jobs increases in the economy in the short run while there is no correlation between them in the long run. The most recent crisis indicates that the Phillips curve theory has been falsified even in the short run. The developed economies are having very low rate of inflation after the global financial crisis, and it has been difficult to increase the inflation rate to a positive number because of the unsatisfactory domestic demand. Therefore, it is not possible to use the prices to decrease the unemployment in the short run in the developed countries (Pathy 5).
Consequently, the unemployment in the long term causes some negative psychological influences on the workers, and that damages the income generation mechanism in the economy. The fundamental relation between the unemployment, the income, and the prices work as follows. The workers cannot find the good jobs and that decreases their income. The decreasing individual income causes a decline in the domestic demand for the goods and services. Finally, the weak domestic demand does not provide the entrepreneurs to make new investments or continue their existing businesses at the same level with the pre-crisis time. That is a cycle caused by the financial crisis, and it is hard to break it to recover. Considering that the goods and services markets and labor markets are interacting, the unemployment occurs in the long term (Pathy 7).
Three testable hypotheses
Following the storyline of the unemployment on the long term, it is possible to define the following three hypotheses:
The decrease in the domestic demand causes a diminishes the income level per person,
The decrease in the income of the businesses reduces the available jobs, especially for the qualified workers,
The drop in the available jobs pushes the workers to stay unemployed or to take part-time jobs in the long term, and their demand becomes lower relatively for the goods and services.
Consequently, the cyclical crisis gets deeper and deeper, and we observe long-term unemployment. The long-term unemployment settles down the psychological negativity among the unemployed people (Currie 4), and solving the unemployment requires more than creating new jobs. Many of the unemployed people apply for the psychological assistance.
The unemployment in the long term is a result of a long economic structural problem, and if no solution is developed for the recurring problem, solving the unemployment for the long term might get more and more complex. For testing the hypotheses, we need to find statistics of the unemployment rate, income per capita, the labor market attendance rate, part time jobs, job creation, and some other relevant statistics.
Taking the New York State as an example, this state is the financial capital of the States, and the highest quality workers are hired considering that the finance sector create one of the highest added values in the country. Therefore, the unemployment problem in the New York State has a different meaning other than the other states. While analyzing the unemployment in the New York State, one needs to check the unemployment classification regarding professions carefully (Levin-Waldman 11).
How to explain unemployment in economics
The classical macroeconomic modeling might easily explain how the unemployment rate increases during and after the recession. However, the capitalistic system faces more and more complex crises in time. The most recent financial crisis is entirely different from the previous ones because even implementing the monetary expansion and the expansionary fiscal policies were not enough to stimulate the national economies. Therefore, it is possible to claim that the increased unemployment rate after 2008 has some different characteristics, and it is comparatively harder to deal with.
The developed countries, as a solution to the unemployment problem after 2008, are working on creating new jobs. Therefore, the developed economies are after increasing the variations in the job markets. More varieties might help the national economies develop relatively better job opportunities, and it might be possible to increase the number of the available jobs. Consequently, the new era in the world economy requires new solutions. The labor market mechanism does not work correctly in the new era of the world economy (Pathy 18).
DATA AND RESULTS
For testing the hypotheses in the earlier section, we need to have some macro variables relevant to the labor markets, income, and job creation. Some of the statistics given below, and I will analyze how the data verifies or falsifies the null hypotheses given above.
Graph 1: Real Gross Domestic Product and Real Median Household Income, (Federal Reserve)
The real gross domestic product and real median household income have decreased after 2007. The real gross domestic product has started increasing gradually while the household income is still decreasing. As mentioned in the previous sections, many of the qualified workers are unemployed after the crisis, and there is pressure on the real wages. Therefore, the household income in the States is decreasing. The decreasing income is decreasing the domestic demand.
Graph 2: Unemployment Rate (Bureau of Labor Statistics)
The level of unemployment is fluctuating over time, and it is still not possible to claim that the labor market has recovered from the adverse influences of the global financial crisis. In the graph 3, we observe that the American economy still cannot create enough jobs, and the people in the labor market are having difficulty for stabilizing themselves in the labor market.
Graph 3: Job creation and unemployment rate (Bureau of Labor Statistics)
The graph 3 indicates the relationship between the job creation and loss and the unemployment. The unemployment rate has started decreasing after 2012; however, the job creation data still indicates that there is a risk in the labor market in the States.
Bureau of Labor Statistics,. "Unemployment Rate". N.p., 2016. Web. 10 Feb. 2016.
Currie, Janet. "Short And Long-Term Effects Of Unemployment On Fertility." Woodrow Wilson School of Public and International Affairs. N.p., 2016. Web. 10 Feb. 2016.
Federal Reserve. "Real Gross Domestic Product". Research.stlouisfed.org. N.p., 2016. Web. 10 Feb. 2016.
Krueger, Alan, Judd Cramer, and David Cho. "Are The Long-Term Unemployed On The Margins Of The Labor Market?". The Brookings Institution. 229-299, 2014. Web. 10 Feb. 2016.
Levin-Waldman, Oren M. "Long-Term Unemployment In The New York Metro Area During And After The Great Recession". Hofstra University. 8-17, 2016. Web. 10 Feb. 2016.
Mitchell, Josh. "Who Are The Long-Term Unemployed?". PennState University. 1-10, 2016. Web. 10 Feb. 2016.
Pathy, Gabriel M. "Hysteresis And Persistent Long-Term Unemployment: Lessons From The Great Depression And World War 2". American University. 1-51, 2016. Web. 10 Feb. 2016.
Isidore, Chris. "7.9 Million Jobs Lost, Many Forever - Jul. 2, 2010". Money.cnn.com. N.p., 2016. Web. 10 Feb. 2016.