Title – Why Unemployment Prevails?
Excerpt – Unemployment: A man who is willing to work, and unable to get a job. This problem is perhaps what most countries are fretting about today. Amidst the high economic growth experienced, unemployment is on the rise due to several internal and external factors like economic restructuring and recession. Read more to better understand these factors affecting unemployment.
What is unemployment? According to the Bureau of Labour Statistics, unemployment can be defined as people who do not have a job, have been actively looking for work in the past four weeks, and are currently available for work. It is commonly measured using unemployment rate which is the ratio of unemployed people to the active working population.
Internally, unemployment occurs due to the restructuring of an economy. This can be demonstrated by the shifting of resources from labour-intensive industries like manufacturing to capital-intensive industries like services instead. As a result, there will be an increase in productivity and this higher productivity lead to a higher output level and wages for the workers. However, these capital intensive industries only act in the favour of those skilled workers since they have higher academic qualifications and skills set needed. Therefore, the growing demand for skilled workers over their less skilled counterparts have given rise to structural unemployment. Consequently, these skilled workers will receive higher wages than those low skilled workers, creating a widening income gap in the economy. In Singapore, the ongoing economic restructuring has resulted in a total of 12,930 people losing their jobs in 2014.
Additionally, the intense competition that firms face in the course of maximising their profit level has also contributed to rising unemployment levels. As firms compete with one another, they will take into consideration their cost of production and their total revenue earned. As such, firms would want to lower their cost of production through the usage of technology and automation that can threaten people’s livelihood. Since these robots and machineries are more cost-efficient and productive, firms would rely more on these technologies to reap the most profits in the long run. A study by the McKinsey Global Institute shows that about 400 to 800 million jobs will be automated by 2030, rendering the skills of those low-skilled workers obsolete in the future and they will become unemployed if they choose not to upgrade themselves. Thus, this highlights the adverse potential implications that competition can have on the workforce especially when the workers are not well-prepared to meet the challenges and needs of the economy.
On a larger scale, the onset of unemployment can be triggered by a recession.
When there is a recession in other countries, there will be a fall in their export demand. As such, there will be a decline in net exports and aggregate demand (AD). Hence, output level decreases and there is a lower demand for factors of production such as labour. Thus, demand deficient unemployment will rise and this affects the living standards of these individuals. During the 2008 recession, the Chartered Institute of Personnel and Development (CIPD) reported that 1.3 million people were made redundant and did not have a job. Therefore, these unemployed workers that are not given a job are unable to contribute to the economy, severely undermining the growth of the economy.
Furthermore, with rising trade uncertainties and the inward-looking stance that many large economies are choosing to adopt now, the fate of employment remains a question left unresolved. The rise of protectionism and Brexit have affected employment levels drastically. This is because there is lower business and consumer confidence levels leading to a fall in consumption, investments and trade among countries. Since these are components of AD, AD will fall significantly, adversely influencing output and real GDP. In order to lower their cost of production further, firms will choose to lay off workers during an economic downturn to minimise their costs incurred. This further worsens the level of employment in the economy in the long run.
An issue that is frequently debated by governments is whether automation and technology are beneficial to the workforce and the economy. Does automation complement or replace the need of employing workers to do the job? Automation helps to overcome physical constraints and is more efficient as compared to human workers. As such, companies would be more inclined to purchase these expensive machines in the short run to reap its benefits of efficiency and productivity in the long run. Thus, more workers will be laid off by firms to ensure that they are able to gain a competitive edge in the long run.
In conclusion, it can be seen that unemployment has numerous repercussions on the economy that can be caused by both internal and external factors. As such, it is necessary for the government to take actions and implement sound policies that are able to resolve these issues promptly before they have a more deep and harmful impact on the economy.
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