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Final Paper: Unemployment Alejandro Paredes ECO 203 Principles of Macroeconomics Carol Bierce

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The current worldwide economy has a great problem. This problem is the unemployment. The European Union, the United States and many countries are concerned about this phenomenon that is causing many problems to the society. In this paper, I will talk about unemployment and its possible solutions, but I will be more focus on the unemployment at national level. However, we dont have to forget that unemployment is a global issue. Unemployment is an important current macroeconomic issue for the United States. Currently, unemployment rate is 9% according the CIA webpage (https://www.cia.gov), and we can also see through this web site that the unemployment rate in 2010 was higher than now. That is a good improvement. However, this rate is still high for the American economy. Unemployment has been above 7% during four presidential elections since World War II, and the incumbent lost three of them. We're at just over 9% now. (Rosato, 2012). The main unemployment rate is coming down, but that figure only includes people who are looking for a job. A broader rate of underemployment includes those who've given up looking and part-timers who would prefer to be full-time. That measure is falling too. Even so, it says that one in seven Americans still want work they can't get. (Rosato, 2012). This means the problem is still growing. There are not opportunities to get jobs and therefore, the rate cannot go down. Other important fact is young unemployment. There is a non-profit organization, Generation Opportunity, which is concerned about these facts and tries to show the issues to young Americans. Here are some important stats provided by this organization in order

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to inform about what is happening with young unemployment. The youth unemployment rate for 18-29 year olds specifically for October 2012 is 12.0 percent. The youth unemployment rate for 18-29 year old African-Americans for October 2012 is 21.4 percent; the youth unemployment rate for 18-29 year old Hispanics for October 2012 is 13.4 percent; and the youth unemployment rate for 18-29 year old Women for October 2012 is 11.8 percent. The declining labor force participation rate has created an additional 1.7 million young adults that are not counted as "unemployed" by the U.S. Department of Labor because they are not in the labor force, meaning that those young people have given up looking for work due to the lack of jobs. If the labor force participation rate were factored into the 18-29 youth unemployment calculation, the actual 18-29-unemployment rate would rise to 16.5 percent.(PR Newswire, 2012) So, whats the solution to unemployment? In this paper I will give possible solutions to the problem. The solution for the unemployment is, obviously, to create new jobs. But this is not an easy task, and it is harder with the current economy situation. Usually, a healthy economic growth rate of 2-3% is enough to create the 150,000 new jobs needed to keep unemployment from rising. When unemployment creeps above 6-7% and stays there, it means the economy isn't strong enough to create sufficient new jobs without help. That's when the government is expected to step in and provide solutions. In this class, we learned about monetary and fiscal policy, and how Government can use these policies in order to solve economic issues. Monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability. The official goals usually include relatively stable prices and low unemployment. On the other hand,

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fiscal policy is the use of government revenue collection (taxation) and expenditure (spending) to influence the economy.The two main instruments of fiscal policy are government taxation and expenditure. Changes in the level and composition of taxation and government spending can affect the following variables in the economy: Aggregate demand and the level of economic activity; the pattern of resource allocation; and the distribution of income. Monetary Policy used as solution. The solution used first to address sustained high unemployment is monetary stimulus from the Federal Reserve. Expansive monetary policy is powerful, quick and usually effective. Lower interest rates allow families to borrow more cheaply to buy what they need, like cars, homes and consumer electronics. This stimulates enough demand to put the economy back on track. Low interest rates also allow businesses to borrow for less, giving them the capital to hire new workers to meet rising demand. The other option is Fiscal Policy. When monetary policy doesn't work, then fiscal policy is usually demanded. This means the government must either cut taxes or increase spending to stimulate the economy. Fiscal policy is usually slower to get started, since Congress and the President must agree on what should be done. However, it can be more effective once executed. It also provides much-needed confidence that the government will stimulate the economy and things will get better. Confidence is a crucial ingredient in convincing people to spend now for a better future. Cutting taxes has a similar, but even more direct, effect as lower interest rates. It gives consumers more money to spend, increasing demand. It also cuts costs for businesses, which can use the cash to invest in their business and hire more workers. Government

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spending usually takes the form of jobs programs, where the government hires workers and businesses directly to build things or provide services. This acts like a tax cut, by providing consumers the cash they need to buy more products. However, there is an important issue regarding with unemployment. This issue is the rise in long-term unemployment. The duration of unemployment benefits is extended in order to lessen the negative impact of unemployment on long-term unemployed workers. A side effect of extended benefits can be to lengthen the average duration of unemployment. If we assume that unemployed workers make choices about whether to accept or reject job offers, then increasing or extending unemployment benefits will affect how these choices are made. On the one hand, unemployed workers who are currently eligible for unemployment benefits may be willing to hold out for longer until they receive what they think is a more acceptable offer. This will reduce the exit rate from unemployment for these workers and thereby increase the average duration of unemployment. On the other hand, not every unemployed worker qualifies for unemployment benefits. In order to qualify, a worker must have had a job and must have been laid off. If a worker does not qualify for unemployment benefits, lengthening the duration of unemployment benefits does not mean much for the worker now, but it does make taking a job much more attractive since the worker then qualifies for the extended unemployment benefits should the worker become unemployed again. Thus one might expect that unemployed workers who are ineligible for unemployment benefits become more willing to accept job offers if unemployment benefits are extended. (Hornstein, 2010).

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In conclusion, unemployment is an important issue of the economy, but with correct actions and good decisions about monetary and fiscal policy, this is a problem that has solution.

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Works Cited
- Rosato, D. (2012). Just the facts about jobs. Money, 104-105.

- 12 percent young adult unemployment impacts 2012 election. (2012, Nov 02). PR Newswire. Retrieved from http://search.proquest.com/docview/1125368933?accountid=32521

- Hornstein, A., & Thomas, A. L. (2010). The rise in long-term unemployment: Potential causes and implications. (). Richmond, United States, Richmond: Federal Reserve Bank of Richmond. Retrieved from http://search.proquest.com/docview/874210915?accountid=32521