Business and Labor: Unemployment rate in the US

Business and Labor: Unemployment rate in the US

The unemployment rate of the US has decreased gradually over the last six years. According to the Bureau of Labor Statistics, the unemployment rate fell to 4.2% in September, which is the lowest value recorded in as many as ten years (United States Department of Labor). The trend indicates a steady recovery from the devastating effects of the Great recession of 2007-2008. Reports point out that the employment status of the Unites States of America is expected to dive into full employment in a couple of years at most. Nevertheless, there are still a number of hurdles to be jumped before the economy reaches such levels; notably, the target wage growth as well as the depressed labor force participation are the factors that must be accounted for within this period. The rate of participation of the prime age labor force – composed of people 25-54 years old – is still 1.7% lower than the standards of the pre-recession era. Nonetheless, the economy has continued to experience a significant growth, with jobs being created at the rate of between 175,000 to 200,000 per month (Gould). This paper investigates the declining trend in the rate of unemployment over the last six years. It studies the primary causes of this decline and its impacts.

Background

The performance of the economy in the period between 2001 and the last quarter of 2007 was progressive with the rate of employment remaining relatively constant. However, an unprecedented burst up of the housing bubble in the year 2007 led to housing corrections and a string of mortgage crises that caused the US to plunge into a deep financial crisis and a subsequent recession. In the course of the recession, nearly 8.6 million jobs were lost and the economy shrank by 5.7% (United States Department of Labor). The bottom trough of this decline was reached in June 2009 marking the onset of the recovery period which has stretched over the last six years.

The recovery was agonizingly slow considering the irregular distribution of the GDP and employment creation. The pace did not pick up until 2011 and the next three years saw the addition of nearly 13 million jobs. By August 2015, the unemployment rate had reduced to 5.1% for the first time since the recession (Luhby). The past three years have seen the transformation of the economy from its ailing status of 2008 with the unemployment rate declining at a fast rate from the high of 10% in 2009 to the recently determined 4.2% (United States Department of Labor).

Statistical Data

The rate of joblessness diminished by 0.2 rate point (equivalent to 331,000) to 4.2 % in September, representing a population of 6.8 million. These two measures were down finished the year. Among the real specialist gatherings, the general unemployment rates for adult males reduced in the month of September.  Correspondingly, the rate of unemployment of the African Americans reduced in the same month. The rate of unemployment for adult females, the youth, Caucasians, and Hispanics remained relatively similar with negligible changes noticed since the beginning of the year. The population of people who had retained their unemployment status for more than 27 weeks was basically unaltered in September at 1.7 million and represented 25.5 % of the jobless. The business populace proportion expanded by 0.3 rate point to 60.4 % in September and has expanded by 0.6 rate point in the course of recent months. The workforce support rate, at 63.1 %, changed minimally throughout the month and has demonstrated little development over the course of the year. The number of people who worked as part-timers was recorded at 5.1 million in September of people part-time labourers was recorded at 5.1 million in September. Among the barely joined, there were 421,000 debilitated specialists in September, around 132,000 from a year sooner. Debilitated labourers defines the population that has skilled labour but cannot find employment in the job market are people not presently searching for work since they trust no occupations are accessible for them. (United States of Labor Statistics)

Causes of the Decline in Unemployment Rate

In the event that the rate of unemployment rockets well beyond the average levels of 5.6%. The circurmstances surrounding the high unemployment rate revolved around the collapse of the economy in the recession of 2008. This period was characterized by cyclical unemployment which transcended across all the industries. It was also agonizingly long-term. The first step is usually to determine the reasons behind the high unemployment rate. Economists, academics and policy makers debated extensively regarding the major causes of unemployment during this era and discussed the possible remedies for the same. Despite the fact that a general consensus on the manner in which this crisis was to be tackle, there was agreement in the categorization of the unemployment patterns. They were distinctly listed into three groups: Frictional unemployment, structural unemployment, and cyclical unemployment.

Government intervention was key in preventing a total economic collapse during the great recession in 2009. The government had to introduce public policies to curb the diving unemployment rates and rescue the economy from going off the cliff. The government opted to regulate the free market through two main fronts: Legislative procedures, formulation of fiscal policies, and the revision of monetary policies. The most effective tool in combating the increment in the unemployment rate was the implementation of various legislative acts.

Fiscal Policies

            The fiscal policies were implemented as a back-up plan after the failure of the monetary policies put in place by the Federal Reserve Bank. A distinct line of separation was drawn between the demand and the supply to enhance the working capacity of the labour market and align it with the population. The government worked out a plan to implement fiscal policies that would lead to:

• Reduction of occupational immobility
• Reduction of geographical immobility

Reduction of occupational immobility: 

Occupational immobility is an impediment to the economy in the sense that it leads to structural unemployment. The government introduced apprenticeship systems as a means of tackling this barrier to employment. These schemes aimed to provide the unskilled labour force, in particular, with new skills so to find them a place in market. The apprenticeship schemes also served as proper incentives for the workers.

In the year 2015, nearly 500,000 people benefitted from apprenticeship programs in the US (United States Department of Labor). For a long time the low quality of work-put preparing has been a worry, with proof of a tireless aptitudes hole in the US. In a report distributed in 2012, it was accounted for that 11% of American workers do not have the necessary qualifications. In many zones, more than a 66% of the general population of working age are not sufficiently qualified to land positions. (Kiviat)

Reduction of the geographical immobility of labour: 

After the recession, most people had the necessary skills to find employments. However, they were discouraged by the high prices of houses and securing mortgages. Such barriers made it impossible for the people to relocate to new places to find jobs. By reducing land rates, the housing rates decreased correspondingly thus creating security in mobility.

Monetary Policy

The Monetary policy in the United States of America is subject to regulation by the Federal Reserve Bank which is commissioned to control the liquidity of the whole nation and the manner in which money circulates the system. To facilitate the creation of more jobs, the government opted to use two efficient methods:

Lowering the interest rates

Firstly, the Federal Reserve Bank decreed to lower the interest rates. This policy change served to facilitate greater investments so as to allow the economy to grow. This is will in turn create more job opportunities. There will be enhanced economic vitality which gives the business community a chance to expand and develop.

Manipulation of Financial Instruments

The second technique utilized was the manipulation of various financial instruments including bonds and treasury bills by buying and selling them. It increased the circulation of money within the economy making more money available for use. With the availability of money to spend, the businesses were gifted the ability to expand thus boosting the capacity for more workers.

Legislative Acts

The signing of various legislative acts into law by the congress were by far the most effective tools in combating the unemployment that had gripped America. Besides creating more jobs, this measure successfully prevented the economy from collapsing in a manner synonymous to the 1930s. Three acts were signed into the law namely:

• The Troubled Asset Relief Program
• The American Recovery and Reinvestment Act
• The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act

The first two legislations impacted the job market peripherally by influencing the factors necessary to increase jobs such as the ability to secure loans. The third Act was the most influential since it directly affected the employment through its impact on tax and benefits. The Troubled Asset Relief Program directed the Federal Reserve Bank to pump $700 billion into the economy. The money would be used to support the banking system to avoid the implosion of the financial framework. This measure unlocked the flow of money which trickled down to the failing financial markets. The American Recovery and Reinvestment Act consolidated the economy by making several tax cuts and allocated more money to infrastructural development. The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act created insurances covers for the unemployed people and extended various social security benefits (Weller).

Effects of the Decline in Unemployment Rate

The acceleration of the country towards full employment status has most certainly impacted the economy positively. As noted from the study, increment in the rate of unemployment can be devastating to the economy. It is safe to conclude that employment is a key determinant of economic growth. The implication of a decline in the employment rate of a nation is that there will be more jobs and increased levels of employment (Setterfield). This trend has led to the following impacts:

1. Increased consumer spending

A stable income enables independent company workers to sustain their existing financial obligations and repay any accumulated debts. Consumer spending increases the circulation of money in the economy. It also provides capital for businesses which allows them to sustain themselves without the need to borrow.

2. Economic development

A high rate of unemployment destroys the economy. It forces the consumers into saving habits that prevent them from committing more funds to purchases beyond the basic necessities of life. By having more employees, the overall spending is increased thus enabling the companies to have the capital need to conduct their operations.

3. Unlocking capital

A stable income enables independent company workers to sustain their existing financial obligations and repay any accumulated debts. The repayment of debts, in particular, enables the financial institutions to be lend out more money, which can be used in investments. The circulation of capital facilitates the making of investments and expansion of businesses. It is almost a cyclic relationship that is self-sustaining.

Conclusion

Summarily, unemployment has negative effects on the growth of the economy. Following the great recession of 2008-2009, the nation lost a lot of employment positions which further accentuated the challenges facing the economy. In the recovery period, the government took steps to salvage the dire situation. It intervened by formulating public policies using the two fronts available: monetary policies and fiscal policies. These policies were aimed at increasing the employment rates and creating more job opportunities. They manged to effectively:

• Incentivize the people into looking for jobs
• Enhance the skills of the unskilled work force
• Create occupational and geographical mobility’
• Sustain the high levels of demand and create a means of supply in the job market
• Create convenient conditions for entrepreneurship.

The government also implemented various legislative Acts that went a long way in unlocking the capital, creating more jobs, and encouraging expansion of the businesses. These included:

• The Troubled Asset Relief Program
• The American Recovery and Reinvestment Act
• The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act

The measures taken were successful in reducing the rate of unemployment which in effect had led to the growth of the US economy by allowing the circulation of money in the market and enabling consumer spending. This progressive trend is projected to continue owing to the growth of the economy. In fact, with the jobs being created at the rate of 200,000 per month, the country will attain full-employment in a couple of years.