My Theory on Unemployment!

This issue of unemployment is without a doubt a heated debate between both parties of the U.S. Government.  Neither the Republicans nor the Democrats seem to agree on a single arrangement to repair the United States economy.  Through my research I have found that the U.S. would need to create around five million jobs in the economy before the U.S. Department of Labor would consider our nation to be “fully employed”.  12.5 million people are unemployed today and 8.6 million people in addition, have resorted to part-time jobs.  “Full employment” means that any person, mainly adults, would be able to find a job and secure it if they wanted to.  Through my research, I have found several key points that I believe should be considered by both parties in the quest to solve unemployment.

First, I have concluded that spending cuts could be a possible way to raise money for other programs, such as unemployment benefits.  Although the topic of spending cuts seems to rely more on the Republican perspective, I do believe that it is something to think about.  It has been said that, when pressed, Republicans have a hard time deciding what exact programs they would want to cut spending in.  Well I have some ideas.  How about grants for “turtle studies” or transportation and infrastructure projects.  Emphasis on “healthy living” could change how much we put into our healthcare system.  Even allowing the private sector an attempt at doing projects less expensively than the government may do.  Do to the national deficit and too much government spending, extending the unemployment benefits to American workers was money that was actually spent appropriately.  By cutting our government spending we have more money to provide unemployment extensions.  These benefits not only help unemployed workers support themselves and their families, it also allows them to look for a job. Instead of worrying about how to support their families and quickly taking a job which they are over-qualified for, these idle workers can focus on getting a job more suitable for them.  I have also concluded that extending the Bush Tax Cuts would be an enormous help to repairing the collapsed job market. Giving tax breaks to businesses of all sizes would allow more funds to be spent towards expansion and hiring more workers. Not only businesses, but providing tax relief to all Americans would also be of tremendous help as it would allow citizens to save more, which would ultimately lead to spending more and pumping money back into the economy.  Increasing the cash flow throughout the U.S. will be the first step in repairing our economy.  

Many of the ideas that I find would be helpful to our economy may not be agreed upon by members of certain political parties, however, it is the development of ideas and the ability to be open-minded that will eventually result in a full-proof plan to stop the growth of unemployment.  All of these proposed ideas are designed by either party to fight unemployment and they all feed off of each other.  Therefore, if nobody is coming up with a solid plan, why not take a chance on these?

The Unemployment Game: Eligibility for Unemployment Benefits!

This is a funny little video that kind of explains the eligibility for unemployment benefits.  I will go into further detail later:

Contestant 1 was laid off and says nobody is hiring so she hasn’t even looked for work.

Contestant 2 lost their job and said they were looking but stopped.

Contestant 3 was laid off as a pilot but got another job at The Home Depot, which counts as a part-time job

Contestant 4 (WINNER) lost her job but says that she has been looking in the Classifieds for the past week. She counts as a part of the 10% unemployment rate because she has been looking for a job.

In the end, contestant 4 asks why the others did not qualify as unemployed and the response is that if we included the other millions of people who were jobless in America the unemployment rate would rise to 17.2% or more, which is very true.  The reason contestant 4 won over the others is because contestants 1 and 2 stopped looking for work and contestant 3 technically has a job, even if it’s only part-time.

Eligibility for unemployment includes:

1. Jobless with no fault of their own
2. Able of labor
3. Available for work
4. Actively in search of work
5. Willing to accept any fitting work

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?

I would like to share this video that I found on YouTube.  It is a prime example of the struggles that the college graduates of 2010 are facing with unemployment.  As college students ourselves, we will be in this position in several years if we cannot find a way out of this crisis.  Watch the video and let me know what thoughts you may have!

Democrat vs. Republican

Allow me to give you some background on the views of unemployment through the Democratic eye and the Republican eye:

DEMOCRATS by and large believe that they can reduce unemployment through the “Keynesian Economic Theory” which basically states that the government can increase growth and employment by increased investment in government spending on public works. (i.e. road building, other infrastructure projects, etc…)  They also believe in “increased unemployment benefits” to give the unemployed money which they will then spend in the economy, thereby adding to demand and fueling economic growth.

However this all requires the government to tax the money from the private sector, taking away the very capital needed by businesses to expand themselves and the economy.  This naturally means that they will have to hire more people to keep up with increased demand. The government does not increase any TRUE economic growth with any of its spending. The government does not pay taxes and does not produce anything to make money. ANY dollar that the government receives HAS to come from the people.  It does not even come from companies. When people talk about corporate taxes, there really is no such thing. Corporations do NOT pay taxes. Corporations are owned by PEOPLE (either the small business owner or the shareholders of the corporation).  So every dollar that the corporations are required to pay to the government comes directly out of the people who own its pocket.  In the end this does not just affect rich people.  It affects all people who have investment accounts, 401ks, IRA, mutual funds, etc because it’s their money being sucked off and handed over to the government.

REPUBLICANS want to reduce taxes, or keep them low, so that the individuals and businesses can use their money 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 argue that Republicans only want to increase the taxes on the top 2-3% of taxpayers, but of that top percent 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 say: leave the money in the economy and with the people/businesses pockets other wise we will have further unemployment for a much longer time.

What is Keeping This Rate Up?

I want to discuss the reasons I have found which have kept the unemployment rate up.

We are now in a recession and our economy is trying to make its way back to the top.  What has happened is that our economy collapsed causing many businesses to go bankrupt, forcing them to lay off an outstanding amount of workers. This provided them with extra money to build their business back up. However, businesses are afraid to provide jobs, pay those employees, and lose even more money than they started out with. This is due to the delay in response from Congress. The Obama Administration and the Democratic Congress have chosen not to act on keeping taxes low or letting them rise after the Bush tax cuts expire at the end of the year. This decision, or lack thereof, explains my point of what’s causing the businesses to not hire anybody. They don’t know if they will actually have the money to do hiring and business expansion.

So I have found that the Democrats are actually holding the economy at a standstill by not saying what will happen. Businesses have to do their planning a few years out and need to know what they are looking at to make intelligent decisions, but 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.

Now that I have discussed these issues, you understand why unemployment transpired. From here, I will begin to view the outlooks on unemployment from the the perspectives of the United States' two main political parties.  Through this, and other research, my goal is to find what solutions each party plans to announce as the end to unemployment and then decide what my view on this issue is.

Why Unemployment?

The importance of education is stressed from the moment we are born.  Our parents teach us to speak, read, and write with hope that we can make it to an ivy league college, get a GED, go on to grad school for 2- 4 years (maybe more), and then continue on to get a good job and comfortable life.  But is it really all that easy?  I have become interested in the issue of unemployment do to the outstanding numbers of people with this problem, even after they have been through this rigorous educational process.

Today, the unemployment rate is at or around 10%, meaning that about 15 million people are unemployed in the United States.  If you count those who were forced into part-time jobs but want to be involved in a full-time work service, the unemployment rate seems to shift to almost 20%. 

So what do we do to bring this rate down?  The government has created subsidized jobs to decrease unemployment, but what is our economy getting out of it?  These government created jobs will not have a long term effect on economic growth. They do not produce an output, they simply provide jobs.  Without this output we are not making money, these jobs just expand the government and requires that the government to take more money from the private sector to pay for them. Doesn’t this put us into a downward spiral?   I believe the best way to reduce the rate is to make the tax rate low so that more money is available in the private sector for business investment and job creations.  These types of businesses will provide jobs for people AND create an output into our economy, ultimately decreasing the unemployment rate.

Through this blog I hope to discuss the causes and effects of unemployment, the possible solutions, and what our government really plans to do about this issue as we move through the mid-term elections.