CBEB1108

MANAGERIAL ECONOMICS II
GROUP 3 : CHRONIC JOBLESSNESS CUTS DEEP

PREPARED BY :

DIYA AYUNI BT MOHD RAMLI CEA100018

KHIEW JIEN MAY CEA100033

NATRAH DEWI BT NOR SHAZALLIE CEA100069

NOR HASNIDA BINTI MOHAMAD CEA100076

NURUL ASYIKIN BT ABDUL AZIZ CEA100094

TEH SYI CHYNG CEA100121

Prepared for: Dr. Nurul Shahnaz Binti Ahmad Mahdzan .

Date: 11 April 2011

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Content
NO
Subject Page No
1. Overview 3

2. Identifying the Macroeconomic 4-5

Issues

3. Comments and Critical Analysis 6

4. Relating the issues to the theory 7-8

learnt in class

5. 9-11
Additional Research

6. Conclusion 12

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Overview
According to The Wall Street Journal, Great Recession has wiped out millions of jobs
for American ever since the Labor Department keeping track in 1948. Though it is reported
that the job marketing is improving, there is still one thing remain – nearly half of the
unemployed (45.9%). This great recession has great impact in many aspects. One major
impact is the unemployed are now facing permanent unemployment and the hardest hit are
older white men with less education. Overall 7 million Americans search for job for 27 weeks
or more and among them; 4.7 million have been out of work for a year or more. This situation
is worst compared to the early 1980’s when the jobless rate topped 10% for months on end.
The long-term unemployment has hit almost every segment of population but the commonly
affected are the white man with a high school education or below. Older people around 65 to
69 years have been jobless for 49.8 weeks. The situation became threatening when it is
possible that the pool of permanent unemployment workers will happen.

A Columbia University Economist states that the consequences are worse for those
who cannot find job quickly. This will leads to them extending from atrophying skills to a
higher likelihood of unhappiness and anxiety and ended up dropping out of the labor force.
As of April, there was unemployment for 21.6 weeks. So, Congress has extended the jobless
benefits to maximum 99 weeks. However those extended benefits will expire if Congress
doesn’t act. With this, the Labor Department estimates that by June, 19,000 jobless workers
will lose their benefits. The white blue collar and construction workers have been affected
much with jobless period 38.1 weeks and 32.3 weeks respectively. Richard Moran,
Ortonville, Mich. (state with highest unemployment rate in US) is jobless for two and a half
years and saying that he was too old to find a job. Surprisingly, he attended two free training
programs to polish his skills and is still jobless albeit having a four-year college degree in
mass communication.

Despite how important education is, college graduates fall into the long-term
unemployment representing 15.9% of the long term jobless. Needless to say high school
leavers. They comprise 40.7% of the long-term jobless. When Moran is jobless, his wife and
daughter are earning for living. This leads to depression and withdrawn in him before
discovering free therapy session.

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IDENTIFYING THE MACROECONOMIC
ISSUES

1) Economics
During recession, business cycle contraction, a general slowdown in economic
activity.Production, as measured by Gross Domestic Product [GDP], employment,
investment spending, capacity utilization, household incomes, business profits and
inflation all fall during recession.But bankruptcies and unemployment rate rise.
Recession generally occur when there is a widespread drop in spending often
following and adverse supply shock or the bursting of an economic bubble.

2) Political
During recession, government respond by adopting expansionary macroeconomic
policies.Example like, increasing money supply, increasing government spending and
decreasing taxation.

3) Demographic
In an economy, firms get production factors from the household, but the firms do not
want to hire production factors that with low educated, low skilled and young people.
Therefore, people withlow educated, low skilled and young peopleare most vulnerable
to unemployment in a downturn.

4) Technology
Now, technology is being high tech and high tech, the new entrants like graduating
students and the re-entrants like former homemakers can also suffer a spell of
unemployment. Workers out of work for a long time tend to find it more difficult to
find a job because they may have become disheartened, while their skills become
“rusty” and obsolete.

5) Social
The living standards of people dependent on wages and salaries are more affected by
recessions than those who rely on fixed income or welfare benefits. The loss of a job

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is known to have a negative impact on stability of families and individuals health and
well-being.

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Comments and Critical Analysis

Although the job markets are improving, the unemployment rate is still high. This is
due to the different job market requirement. For example if you were laid off from
construction, it’s not going to be that easy to find work in health care which is growing.

The older people are the most affected by this chronic joblessness. This is due to the
job market requirements that preferred younger adult. Younger adult is said to be more
efficient by most firms.

It is a concern that people with long term of unemployment will end up out of labour
it is a loss to the nation as the government have to deal with the lost income (unemployment
benefits) and decreased production but also with additional cost.

The blue collar workers are majorly affected (those working with hourly paid)

Unemployment affects the mental health in society in the bad way. People are
stressful, losing enthusiasm and willpower issue, increase in suicidal tendencies and also
having psychological health issue. The man who cannot work to support his family are the
most affected.

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Relating the issues to the theory learnt
in class

The issues in the article of “Chronic joblessness cuts deep” are mainly related about
the unemployment and recession in the economy. In the article it has stated that the Great
Recession has wiped out jobs for millions of Americans, and many now face permanent
unemployment.

The unemployment rate is a key macroeconomic statistic. Unemployment exists when

someone is actively seeking for job but unable to find any despite their willingness to accept
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The unemployment rate measures the percentage of the labor force that is employed.
The unemployment can be calculated by:

Number of unemployed x 100 = Unemployment rate

Labor force

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 The employment rate never falls to zero. There are three of unemployment which was
the frictional unemployment, structural unemployment and the cyclical unemployment. The
frictional unemployment is short-term unemployment that arises from the process of
matching workers with jobs. The process of job search takes time, so there will always be
some workers who are frictionally unemployed because between jobs and in the process of
searching for new ones.

Structural unemployment refers to unemployment arising from a persistent mismatch

between the skills and attributes of workers and the requirement of jobs. While frictional
unemployment is short term, structural unemployment can last for longer periods because
workers need time to learn new skills.

Cyclical unemployment happens when the economy moves into recession, many
firms find their sales falling and cut back on production. As production falls, firms start laid
off workers. Workers who lose their jobs because of recession are experiencing cyclical
unemployment.

It was stated clearly in the article that the Great Recession has wiped out jobs for
millions of Americans, and many now face permanent unemployment.

Cyclical unemployment is a term in economics, which is based on a greater

availability of workers than there are jobs for workers. It is usually directly tied to the state of
the economy. Lower demand for products due to lack of consumer confidence, disinterest, or
reduction in consumer spending results in the workforce cutting back on production. Since
production is reduced, companies that retail such products may also cut back on workforce,
creating yet more cyclical unemployment.

The reason this type of unemployment is called cyclical is because it is usually linked
to a country’s business cycle, a system of evaluating how gross domestic product changes
over time. Length of time is not always predictable in a business cycle, which includes four
basic periods. At the beginning of a business cycle, a slowdown in economic activity occurs
resulting in a sharp drop into a trough, which hits the lowest point of the economic cycle and
would be linked to the highest unemployment rate. Gradually, through a variety of factors,
pace of economic activity increases in the expansion period, and then the business cycle hits
its peak, which translates to economic recovery and more available work.

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Additional Research
According to research, unemployment is one of the main problems in Jamaica.

This study intends to discover the effects of unemployment on family lives in Brown’s

Town, and the factors contributing to the increase in the number of unemployed persons.

The study also seeks to determine the causes of unemployment in the society and

the factors which are likely to get you into the unemployment queue. According to

observations and some books, unemployment creates a depressive impact-family

instability and relationship problems. The internet depicts that unemployment causes

family disorders. An interview was conducted which shows that unemployment is also

caused by religious, political and educational reasons. Rastafarians for examples have a

hard time getting a job because of their religion, the winning political party does not give

jobs to voters or supporters of the opposing party and a lack of education is responsible

for many people being unemployed as most jobs require at least a high school.

The Daily Gleaner dated; September 07, 2008, shows that unemployment is

caused by laziness and lack of education, because jobs are always being advertised in the

Daily Gleaner and most times no one turns up for the position.

The growing rate of unemployment in Jamaica has always been an issue that

puzzles and interests me. The many problems include crime and violence and the

lowering of people’s self-esteem. By completing this research, the researcher hopes to

explore the many causes of unemployment, a realization of the seriousness of the

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problem in the country and suggestions as to what can be done to alleviate this problem.

In economics, a recession is a business cycle contraction, a general slowdown in

economic activity. During recessions, many macroeconomic indicators vary in a similar way.
Production, as measured by Gross Domestic Product (GDP), employment, investment
spending, capacity utilization, household incomes, business profits and inflation all fall
during recessions; while bankruptcies and the unemployment rate rise.

Recessions generally occur when there is a widespread drop in spending often

following an adverse supply shock or the bursting of an economic bubble. Governments
usually respond to recessions by adopting expansionary macroeconomic policies, such
as increasing money supply, increasing government spending and decreasing taxation.

During a recession, there is a general trend of rising unemployment rates and

decreasing overall output. With fewer people contributing to the economy, the overall
economy is bound to be affected. Income growth would be stalled. While there would be
more people in the market looking for employment, the demand for recruiting people is far
lesser.Apart from that, a recession can be characterised by:

 Rising unemployment (often unemployment is a delayed factor). For examples, it

takes time for unemployment to rise, but, even when the economy is recovering, it
takes time for unemployment to fall.

 Rising Government Borrowing. A recession is bad news for the government budget.
A recession leads to lower tax revenues (lower income tax and corporation tax
revenues) and higher government spending on unemployment benefits. For example,
The UK is forecast to borrow £60 billion, a recession could make this borrowing even
worse in 2009. This borrowing means higher taxes and higher interest payments in the
future.

 Falling Share Prices. Generally a recession leads to lower profitability and lower

dividends. Therefore, shares are less attractive. Note share prices often fall in
anticipation of a recession. For example, the recent falls in share prices are largely
because the market expects a recession soon. During the actual recession, share prices
often increase in anticipation of the economy recovering. Note also, falling share
prices don't always mean a recession, falling share prices can occur for many other
reasons.

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  Lower Inflation. Typically a recession reduces demand and wage inflation. This
should result in a lower inflation rate. However, this recession is complicated because
of rising oil prices. Therefore, the forthcoming recession may actually occur
simultaneously with higher inflation - a term known as stagflation. But, a recession
will definitely reduce demand pull inflation pressures and encourages price wars on
the high street as firms seek to retain consumers.

 Falling investment. Investment is much more volatile than economic growth. Even a

slowdown in the growth rate (economy expanding at a slower rate) can lead to a
significant fall in investment.

Most mainstream economists believe that recessions are caused by inadequate aggregate

demand in the economy, and prefer the use of expansionary macroeconomic policy during
recessions. Strategies used for moving an economy out of a recession vary depending on
which economic school the policymakers follow. Monetarists would prefer the use of
expansionary monetary policy, while Keynesian economists may advocate
increased government spending to spark economic growth. Supply-side economists may
suggest tax cuts to promote business capital investment. When interest rates reach
the boundary of an interest rate of zero percent conventional monetary policy can no longer
be used and government must use other measures to stimulate recovery. Keynesians argue
that fiscal policy, tax cuts or increased government spending, will work when monetary
policy fails. Spending is more effective because of its larger multiplier but tax cuts take effect
faster.

So, clearly here recession is definitely bad for economic growth and development. It

slows down the economy and also increase the unemployment rate in the economy.

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CONCLUSION
Unemployment is one of the key macroeconomic problems. Presidential election are
often won and lost on the basis of which candidate is able to convince the public that he or
she can best deal with these problems. Many economists, however, would argue that, in the
long run, maintaining high rates of growth of real GDP per person is the most important
economic concern. Only when a real GDP per person is increasing will a country’s standard
of living increase.

In economics, a recession is a business cycle contraction, a general slowdown in

economic activity. During recessions, many macroeconomic indicators vary in a similar way.
Production, as measured by Gross Domestic Product (GDP), employment, investment
spending, capacity utilization, household incomes, business profits and inflation all fall
during recessions; while bankruptcies and the unemployment rate rise.

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