Unemployment and the effects on the economy Seven dollars and fourth five cents is the hourly wage set by the State as an appropriate minimum income for anyone trying to build a foundation for...

Unemployment and the effects on the economy
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Ashraf Alfarah
Unemployment and the effects on the economy
Em
y Riddle University
8/5/2013
Instructor Ali Arshad
Unemployment and the effects on the economy
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Unemployment and the effects on the economy
Abstract
The paper attempts to elaborate on the issues relating to unemployment. It explains the
effects of unemployment on people and on the economy as a whole individuals through reduced
incomes, leading to reduced aggregate demand and depressed productive activities in the
economy. The trends in unemployment in the past decade have been examined to explain the
ecent crisis. Further, the devastating effects of unemployment on the major contributors of
aggregate demand- consumption, investment and government expenditure, have been explained
more clearly. The social impacts of unemployment are also reasoned along with the effects on
the mental health of individuals.
Unemployment
The unemployment rate is a very important economic indicator; along with other
indicators like Gross Domestic Product, Inflation, or interest rates, it helps to examine the
strength of the economy. Along with the most commonly used economic indicators, like Gross
Domestic Product, Inflation, or Debt, Unemployment proves to be a strong indicator that helps
compare various economies on welfare ground as well.
The official definition of unemployment states that, “people are counted as unemployed
if they are part of the labor force and are not employed, more specifically, unemployed workers
are those who are able and willing to work, who have actively looked for work in the past four
weeks, but have not found or taken a job or been recalled to a previous job”(Department of
Labor, n.d.). Similarly, it defines employment as, “people who have full-time jobs or part-time
Comment [a1]: This is too
oad. You need to be
more specific.
Comment [a2]: This is a run-on sentence. You
need to re-write it.
Unemployment and the effects on the economy
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jobs, are self employed, work for a family business, or also if they are on vacation, maternity
leave etc.”(Department of Labor, n.d.).The unemployment rate is reported as the percentage of
the labor force that is counted as unemployed.
Unemployment Rate = (number of unemployed persons / labor force) x 100%
It has been observed that the economy recovers and improves before the unemployment
ate begins to increase.So, the unemployment rateunemployed has been witnessed to be a lagging
indicator of the economy, and causes a ripple effect in the economy.(explained in detail later in
the paper)
Unemployment rate and US economy
The employment is the most important real variable (not nominal or monetary)affecting
the US economy. It has been observed by the economists over a long period of time that
increases in employment boosts the US economy’s output. The trends convey that whenever
unemployment rate has risen, the US economy’s GDP has shown a dip.(evidence of crisis period
has been provided)This trend was also observed during the recent 2007-08 crisis where the GDP
growth rate of the US economy had declined sharply and unemployment had risen sharply. This
decline in national output depressed the whole economy driving it into recession.
How does unemployment rate affect youUnemployment and people in US
Rising unemployment rates deteriorate the bargaining power of the existing workers
also(this relationship is an assumption by Milton Friedman in his concept of NAIRU). The
impact of unemployment leads tocan be seen in reduced incomes of all the citizens(based on
Comment [a3]: There is a ve
missing.
Comment [a4]: Unemployment rate is a lagging
figure, not unemployed.
Comment [a5]: How?
Comment [a6]: What do you mean by “real
variable”?
Comment [a7]: By whom? Specify.
Comment [a8]: Can you provide evidence?
Comment [a9]: What does this sub-topic mean?
Comment [a10]: Can you cite some evidence to
ack this claim?
Unemployment and the effects on the economy
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simple logic that when people are unemployed they do not earn any income, also as mentioned, it
educes bargaining power of those who are employed so their incomes also reduce, such a
situation was observed in 2008 and these informations were provided by the newsletters ).
The highest unemployment rates drive down the demand for goods and services by
people.The standard of living of the people deteriorates also de-scaling the levels of education
and health for the individuals.(even I could not trace this, might have written by mistake)
Unemployment trends (the question asked for recent unemployment trends, this is the data
epresented in the graph, not relating to above things)
Seasonally Adjusted Unemployment Rate
Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2003 5.8 5.9 5.9 6.0 6.1 6.3 6.2 6.1 6.1 6.0 5.8 5.7
2004 5.7 5.6 5.8 5.6 5.6 5.6 5.5 5.4 5.4 5.5 5.4 5.4
2005 5.3 5.4 5.2 5.2 5.1 5.0 5.0 4.9 5.0 5.0 5.0 4.9
2006 4.7 4.8 4.7 4.7 4.6 4.6 4.7 4.7 4.5 4.4 4.5 4.4
2007 4.6 4.5 4.4 4.5 4.4 4.6 4.7 4.6 4.7 4.7 4.7 5.0
2008 5.0 4.9 5.1 5.0 5.4 5.6 5.8 6.1 6.1 6.5 6.8 7.3
2009 7.8 8.3 8.7 9.0 9.4 9.5 9.5 9.6 9.8 10.0 9.9 9.9
Comment [a11]: This is an untrue statement.
You are making a sweeping generalization here.
Comment [a12]: What is the highest
unemployment rate?
Comment [a13]: What is this?
Comment [a14]: Over-generalization. Where is
the evidence?
Formatted: Indent: First line: 0.5"
Comment [a15]: What is the point of this table?
Is it related to something you said above? If yes, I
don’t see the connection.
Unemployment and the effects on the economy
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2010 9.8 9.8 9.9 9.9 9.6 9.4 9.5 9.5 9.5 9.5 9.8 9.3
2011 9.1 9.0 8.9 9.0 9.0 9.1 9.0 9.0 9.0 8.9 8.6 8.5
2012 8.3 8.3 8.2 8.1 8.2 8.2 8.2 8.1 7.8 7.9 7.8 7.8
2013 7.9 7.7 7.6 7.5 7.6 7.6
The unemployment data has been extracted from the official site of the Bureau of Labor
Statistics, United States Department of Labor, Government of United States ( Department of
Labor, n.d.).
The recent trends observed in unemployment rate clearly depict that how the
unemployment rate acted as a lagged indicator. It is evident from the graph that the
unemployment rate was gradually declining from 2003 to 2007, reaching the minimum of 4.4%,
which was due to the boom period in the economy. Thereafter, a sharp rise in unemployment has
een observed, particularly from 2008 onwardsinwards, which was due to the effect of 2007-08
crisis, and it peaked at 10%. As the economy started recovering from mid-2009, the subsequent
Comment [a16]: Your table only shows
unemployment rates. If you are claiming that the
GDP lagged behind, you need to present the GDP
figures along with the unemployment figures.
Comment [a17]: which was due to the 2007-08
economic crisis.
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fall in unemployment is observed from...