Analyzing Unemployment!

As I have posted on unemployment I have given you an overview of what unemployment really means and what each side (the Republicans and Democrats) want to do about it.  However, that just skimmed the surface.  The purpose of this post is to give you, in detail, some more insight to the various arguments in the public, the positions each political party has taken, and the varying groups that this issue affects.

           

So what exactly is unemployment?  According to Wikipedia, that reliable source that attracts everyone’s attention, unemployment occurs when people are without a job and have actively looked for work within the past two weeks.  The United States Department of Labor states that unemployment also includes those who were not working and were waiting to be recalled to a job from which they had been temporarily laid off.  Many of these people often switch to a part time job, if they are available.  Today, if we count the people who are completely unemployed we can say that the unemployment rate is around ten percent.  If we take into account those who are part-time workers, but were employed full-time before, the unemployment rate peaks at around twenty percent.  This unemployment rate is measured by the Current Population Survey which is a sample survey that measures the amount of unemployment in the country every month.  It combines with the Census Bureau to conduct surveys to about 60,000 households to see who is unemployed.

Many times, unemployment can be caused by several cases.  Seasonal Unemployment is self-explanatory and that is the category I find myself in.  I am a lifeguard at an outdoor pool, so when I am in school in the fall I do not have a job and must look elsewhere.  Frictional or Search Unemployment happens when someone loses or leaves there job and simply must search for another one.  This could be a quick process or take a long time.  Structural Unemployment occurs when an industry moves, better technology is created, people change their interests, or there is no need for that industry in a certain place anymore.  Right now we find ourselves in the Demand-Deficient or Cyclical Unemployment stage.  That is, there is not enough demand for workers and therefore not enough jobs to take on.  When the economy begins to die down employers will lay off workers because there is no longer a need for them, as well as no way to pay them for their work.

The causes of unemployment are debated and there are several theories as to why it happens.  The Keynesian Economic Theory suggests that there is an inadequate demand for goods due to a low economy, which results in a low demand for workers. Another theory suggests that when supply equals demand, everyone will be able to find jobs.  However, when they are not equal the wages are too high and there is more supply than demand for workers.  There are also changes in the workforce and changes in the salary people look for (in order to survive the economy crisis), which lead back to the Frictional/Search method.  In the end unemployment first hurts the unemployed, but as the months progress and as the numbers of jobless people raise it is the economy as a whole that gets crushed!  Workers and their families lose wages, and the country loses the goods or services that could have been produced to amplify our economy.

The unemployment crisis has hurt many different groups of Americans.  We can group them as the actual unemployed (new graduates of 2010 and those who lost their jobs), the employers, and politicians.  Unemployment is taking off and making a pit stop in every zone of the United States.  According to the video that I posted on Monday, many 2010 graduates are having difficulties finding jobs just out of college.  That’s pretty serious when you think about the amount of student loans that you have to pay back.  The example in the video that they use is of a man who graduated six months before he was supposed to just so he could get a jump start at looking for jobs.  He has sent out seventy resumes and has received nothing in return.  He is not the only example though; this is an ongoing problem for all 2010 graduates.  When we look at the graph I found on CNNMoney, we can see the statistics of the other group of the unemployed, those who lost their jobs in the first place.  During the month of September 95,000 jobs were lost because business employers stopped hiring.  According to a Bloomburg Survey, private sector employers were expected to create about 20,000 jobs in the month of September, but when you have no grounds to stand on and no way to pay your employees, it makes it difficult to promise someone a job. Businesses are waiting on their government to give them those means and employers grow more disappointed as Democratic leaders of Congress refuse to establish tax rates for 2011. If they are kept in the dark as to what to expect from their government then they have no confidence to move forward. With such risk taking moves businesses could really crumble.  And speaking of the government, when we look further we see that they have done more to contribute to the damage.  The government dropped 159,000 workers in September and many of them (around 77,000) were census workers.  At the state and local level many education workers (about 58,000) lost their jobs and another 25,000 jobs have been cut in other specialties.  Cutbacks in state and local governments accounted for the overall loss of jobs do to the fact that, although nervous, private sectors are slowly expanding.

Alright, so let’s get into the debate that we are facing with the upcoming 2010 Midterm Elections.  Unemployment is one of the main topics in this election due to the vast amount of Americans that have been put out of their jobs.  As I have done my research I have come to the realization that the unemployment crisis leaves mostly the government to blame.  While problems with the economy have dominated the 2010 midterm election campaign, unemployment is said to be perhaps the most disappointing aspect of its failure. In early 2009, President Obama and Congressional Democrats forced through a $787 billion stimulus package designed to ward off further unemployment problems without Republican input and over the GOP's objections. Whether the stimulus made the situation worse is up for debate, but what's certain is that unemployment has reached a 26-year high. Millions remain out of work and Democrats stubbornly refuse to embrace any GOP ideas, content to blame them for the problem instead.  However, American voters will undoubtedly hold Democrats accountable on Election Day taking into account the failed stimulus package and misused economic policies.  Obama isn’t the only one to blame though because many economists underestimated the recession and how hard it would be to recover.  Also, the stimulus package did do some could as it created over a million jobs and kept unemployment lower than it may have been without the package.  I don’t think we can put all the blame on one party or one thing that they may have done.

Knowing where each party stands on unemployment and how they plan to fix it is important to understanding the debate.  The Republicans and Democrats have always had opposing views on topics and how they plan to handle the situations put before them.  Next, I will identify what each party wants to do to fix the issue of unemployment.  After, I will discuss what President Obama thinks should be done and has tried to do (other than his previous stimulus package) and finally, I will finish by discussing way in which I believe the economy could be boosted!

REPUBLICANS:

Republicans want to reduce taxes or keep them low so that the individuals and businesses can use it to grow the economy and therefore create jobs.  By increasing taxes in a recession, or any time for that matter, is counter productive to actual beneficial job creation. Democrats may argue that they only want to increase the taxes on the top 2-3% of taxpayers but that top are the very small business owners that are responsible for over 50% of job creators in the country. They are not the small mom and pop shops. So by taxing them the government is taking away the very money that they need and would use to hire more people. Republicans want to leave the money in the economy and in people and businesses pockets, other wise we will have further unemployment for a much longer time.  These kinds of relief encourage investment and risk-taking for small businesses to re-hire former employees and create new jobs.  Republicans also want to extend the Bush Tax Cuts but it is a large debate even within the party.  Designed to expire in 2011, nobody thought that they would end when the economy was still struggling to recover from one of the worst recessions since the Great Depression.  Republicans argue that a failure to extend all of the tax cuts, including those for wealthier Americans, will damage recovery.  It will provide major relief to working Americans and private sector firms. 

DEMOCRATS:

Obama and the Democrats view unemployment in a completely different way than the Republicans and plan to take a much different approach.  They believe that they can reduce unemployment through increased investment in government spending on public works such as the highway system, update air traffic controls in the U.S., expand on the railway system, other infrastructure projects, etc.  This will create more jobs for Americans.  Democrats want increased unemployment benefits to give the unemployed money, which they will then spend in the economy and thereby add to demand fueling economic growth.  Tax incentives for businesses to hire workers is another method in their plan along with tax cuts for those who work on making their houses more energy efficient.  Democrats have already started calling for another round of government spending, however most believe that spending will just put us in more debt that this massive government spending would increase unemployment.  The National Debt is a major setback for most of the projects that the Democrats have come up with.  Americans fear sinking further and further into financial turmoil and most of these plans to help unemployment will cost an outstanding amount of money.  Just the plan of investing in public works will cost about $50 million.

As I was doing my research I found that many websites seem to either be biased or tell you the exact same thing as every other website on this subject.  This issue has definitely spurred conflict between the opposing parties and the public is obviously in great shock with the amount of jobs that we have lost in the past few years.  If the Democrats propose a bill the Republicans will automatically shoot it down and complain about the amount of spending it will require.  On the other hand, if the Republicans take office again the Democrats are worried that they will try the same failed policies that go us into this mess in the first place.

Aside from these problems, I found that the biggest problem being discussed right now for the Obama Administration and the Democrats is that if the economy doesn't create 100,000 to 125,000 jobs, the national unemployment rate will rise even higher.  At the current rate of job creation, the nation would need nine more years to recapture the jobs lost during the recession and five million or six million more jobs may be needed in that time to keep pace with our constant population growth.  On a brighter side, however, I found that even fewer people applied for unemployment benefits for the fourth time in five weeks and the number of open jobs rose in August for the second month in a row to 3.2 million.  The private sector also added 64,000 workers this month.  So as we’re losing all of these jobs, we are still making them but the economy still doesn’t look like it will be taking a turn towards the sky yet. Stephen Bronars, senior economist with Welch Consulting, states "We're not losing jobs, but we're not gaining at a high enough rate to make a dent in the employment problem either.”  So what do we do to fix the problem and spur the economy?  Although on the Republican viewpoint, FoxNews shot out five ways that we could make a bad economy better and gave me something to think about. The first was to cut the corporate tax rate, which would stimulate private sector growth and encourage investment; second was to renew unemployment benefits, which would slightly raise unemployment among the affected individuals and would also raise people's spending, thereby increasing output and employment in the economy overall; third was to extend the Bush Tax Cuts, a policy that both parties can seem to agree with and would keep money in the pockets of individuals and the private sector for spending and job growth; fourth was to pump in more stimulus such as Obama’s plan for infrastructure investment; and fifth was to cut spending, which take a whole other turn from the previous suggestion.  So after reading my analysis post and learning more about the unemployment crisis, my question for you is: What do you think the best policy would be to make this bad economy better?