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The Effects of Long-Term Unemployment on the U.S. Economy

By res5ct Sep 20, 2014 934 Words
The Effects of Long-Term Unemployment on the U.S. Economy
Unemployment is an extremely serious and scary issue due to the effect it has on our current state of economy. As a student and a future graduate, I am extremely concerned with this subject. If the job-market situation does not change for better, unemployment can represent a serious issue for all students, recent graduates, and current unemployed workers. And can have a significant effect on socioeconomic conditions and therefore, economy itself.

When we look back at the history of the United States, we can see that there was only one short period of time when unemployment was virtually non-existent. As we were taught in this class, the only period when unemployment almost did not exist was during World War II. In order to support the war efforts, the United States government created jobs for anyone who wanted to work. That means that only one time in United States history the economy functioned on the line of the Production Possibility Frontier.

In the earlier chapters of this course, we were introduced to basic principles of economics and to the Production Possibility Frontier. The Production Possibility Frontier is a graphical representation of various combinations of the amounts of two commodities that could be produced using the same factors of production. When the point lies on the curve line of Production Possibility Frontier that means that a company or economy is functioning with maximum efficiency; meaning that with available factors of production the productivity output is at its highest point. Everything on the inside of the Production Possibility Frontier line means that a company, or economy is not using all available resources for production; on the other hand, everything on the outside of the Production Possibility Frontier line is un-obtainable. In order to achieve that level of production, factors of production need to change. That refers to improvement in technology, labor force, or availability of resources. If economy is functioning under the line of Production Possibility Frontier, which means that not all of the resources are in use, the economy is not producing to its potential. This can be from reasons of not maximizing available resources, technology or the labor force. We can see that only during World War II the economy of the United States had used all available factors of production to maximize its production output. We can see that unemployment has the ability to limit the effectiveness level of the production of goods and services. By eliminating unemployment we can maximize the Production Possibility Frontier. Some researches show that employers are reluctant to higher people who have been out of work for longer than six months. Most economists agree that high levels of unemployment are costly, but not only on individuals and their families, but also on the economy as a whole. As a result, this can create dependency and a long-term economic drag if the unemployed are not put back to work within a couple of months. Therefore, we can see that the Long-term unemployment is a long-term national problem because unemployment causes a waste of scarce economic resources and reduces long run growth potential of the GDP. Nevertheless, if unemployment could be reduced, or in other words, the number of people employed would increase, then the total national output would increase and in turn would lead to improvement of the economic welfare. As we can see high unemployment percentages have a significant impact on government spending and expenditures. The increase of unemployment levels usually lead to higher benefit payments and lower tax revenues because the unemployed have little to no income to spend, which means that those individuals will not contribute through indirect taxes. When the unemployed receive government unemployment benefits, not only are those benefits being taken out of the government budget, but those individuals do not pay income taxes. This situation can cause increases in the budget deficit because the government will have to borrow higher loans in order to pay off all benefits. Another issue with the long-term unemployment is that it can lead to de-skilling of individuals. In a world with rapid changes in technology, job requirements and job markets are changing every day. So, if an individual is unemployed for a long period of time, that can represent a risk of that individual becoming outdated. Since that would reduce their chances of regaining employment, this can potentially increase stress on the government budget and the economy. In order for an unemployed individual to become competitive in the job market they need to be retrained or to seek higher education. Unemployment also takes an effect on socioeconomic conditions, since unemployment is related to rising crime and worsening social conditions. Poor socioeconomic conditions can reflect on situations in families by increasing divorce rates, increasing stress and worsening health. It is clear that the duration of unemployment or unemployment in general, has a substantial economic and social cost. The longer the unemployment periods, the lower the chances are for those individuals to return to competitive job markets. High unemployment has an effect on real income and spending together, along with a rising scale of relative poverty and income inequality. The problem with long-term unemployment has to be addressed on a national level since the unemployment level has direct impact on the economy. There is a need for creating job opportunities and re-training programs for the individuals that are without jobs. This could only benefit the future of a significant drop in the unemployment field and a rise in the economy.

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