What Is the Natural Rate of Unemployment and Explain Why Unemployment Rates Are Sometimes Inaccurate. How Can Governments Mitigate Unemployment Problems in the Short Run and Long Run?

Topics: Unemployment, Economics, Minimum wage Pages: 6 (1773 words) Published: March 4, 2013
Name: Mohamed Sadeq Mohideen

Module: Contemporary Economic Policy


What is the natural rate of unemployment and explain why unemployment rates are sometimes inaccurate. How can governments mitigate unemployment problems in the short run and long run?

Unemployment is always the result, when the available workplaces cannot adapt to the job seekers. When the number of persons, who offer their working capacities, exceeds the number of available workplaces, this leads to a lack in workplaces. Loosing a job can be the most distressing economic event that can occur in a person’s life. Most people rely on labor earnings to maintain there standard of living, and many people get from there work not only income but also a sense of personal accomplishment. Loosing a job means a lower standard of living cutting down on many necessities and of course all the luxury’s in life. Then comes the anxiety about the future and insecurity. In our society where money means success the unemployed feel useless and consider themselves a failure. They are dissatisfied and depressed and this may lead to alcoholism drug problems and homelessness and even to crime. Especially for families it’s difficult because they don’t have enough money to afford their basics of life. Hence the government has to help financially, but this causes high costs for working people who have to support the unemployed.

The normal rate of unemployment around which the unemployment rate fluctuates is called the natural rate of unemployment. This is one of the many definitions available for the natural rate of unemployment. Unemployment has become a serious economic problem. In third world countries the majority of people can only make living by working for others. Many millions of people are both able and willing to work, but simply cannot find a job. The problem with such countries is that the types of workers who are looking for jobs are often different from the types of workers wanted by the employers. For various reasons, the unemployment rate cannot be reduced to zero, if only because people are always being fired, laid off or moving between jobs. But even granting that unemployment can never be completely eliminated, it still might be possible to ensure that anyone searching for a job can find one reasonably quickly. Economists call this happy state of affairs "full employment."

In the last years there have been many changes concerning the market situation, technological developments and other parts of the labour market. Firms that don’t adopt their production program, get a problem, because in the market situation goods that were sold in former times are not needed anymore. A typical example is a typewriter. Until the 1980’s a typewriter was irreplaceable in an office it was the technological standard in the last 100 years. But today everybody would laugh if the technological standard in an office were a typewriter, because nowadays we live as a computer aided generation Another point is that companies replace workers with machines. The machines work round of the clock and the machines don’t have to be paid over time. A machine doesn’t break down for a long time so the costs are cheaper and more calculable.

What’s more, larger companies often relocate their company headquarters. They choose a country with lower wages and lower labour costs. Sometimes they prefer illegal workers or even children in order to get a higher profit. But on the contrary job recruits with a good knowledge of electronics and mechanics, a rising technical competence and also a broad general education are needed.

Statistics based on unemployment are often inaccurate because unemployment rates just measure who check in with the unemployment office or someone who is actively looking for a job through various media. It doesn't factor in people who have moved back to wherever they originally were from, people who went back to school or people who have just given up or...
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