Unemployment (Part 5)
Every wonder why unemployment in some years are higher than others?
Why some countries have lower levels of unemployment rate than others?
Why some countries seem unable to create jobs for its people?
Unemployment is not a simple problem. The cause of unemployment may differ from country to country as evident from the following examples. As you read the extracts, think about how you would classify the different types of unemployment (or employment) in the situations below.
Yasheng Huang, an associate professor at the Sloan School of Management at Massachusetts Institute of Technology, explained: "Basically, in the 1990's, foreign firms based in America, Europe, Japan and the rest of Asia moved their manufacturing operations to China. "
The real losers, it seems, are mostly low-wage workers elsewhere, like the ones at Hitachi who lost their jobs in Japan, along with workers in other parts of Asia who suffered as employers began relocating plants to China. Blue-collar workers in the United States have also lost out.
(The New York Times, Feb 2006)
Labour markets rarely function perfectly. But Germany’s labour market is not really a market at all. It abjures free competition, which it likens to the law of the jungle. Firing is a last resort. Wages are negotiated collectively. These clubby, consensual arrangements served Germany well for several decades after the war, winning the country an enviable industrial peace. But they have now become, in effect, a conspiracy of insiders against outsiders. The 5m outsiders, who lack a job, might be prepared to work for less than those who have a job. But employee protections and union rules insulate the insiders from any competitive threat the outsiders might offer. As a result, the insiders maintain wages above the level that would make it profitable for employers to hire those out of work.
(The Economist, Feb 2005)
The German economy is close to recession, and the number of unemployed remains stubbornly above 4 million.
"Every worker should be willing, in order to help secure his or her job, to give up three to four holidays per year," said Mario Ohoven, president of the country's Small Business Association. "Germany can't afford to have the highest labour costs in Europe and at the same time the greatest number of holidays," he said.
(BBC News, 2003)
Globalisation has intensified the problems facing UK manufacturing businesses. In many traditional industrial heartlands, rising import penetration and a switch of manufacturing to lower-cost production centres in South-east Asia and Eastern Europe has caused a fall in output and many thousands of lost jobs.
We need to confront the fact that automation and technological innovation generally dwarf outsourcing as a source of job churn. Go back as far as you want and you can see a seemingly endless stream of jobs eliminated by technological innovation: longshoremen put out of work by containerized shipping, telephone operators put out of work by computerized switching, factory workers put out of work by robots, bank tellers put out of work by automatic teller machines, receptionists put out of work by voicemail.
The Senior Minister traditionally uses his annual National Day Dinner at Tanjong Pagar to speak frankly about the big problems facing the nation. And this year, his top concern is unemployment. It's almost 5%, and there are 85,000 people out of work.
"Is it our fault? What have we done wrong? Have we become lazy? Have we become less productive? Alas we are not to blame," he said. The world has changed, and Singapore's products and services - like its port and national air carrier -- are now no longer as competitive as those of low cost countries.
(CNA, Aug 2003)
Singapore's economy expanded for a fourth straight quarter, adding to evidence that global demand for digital music players and laptop computers made in Asia is fueling growth in the region. Companies including Seagate Technology Inc., the world's biggest maker of computer disk drives, are expanding in Singapore to meet orders. Such an expansion is fueling jobs growth and wage increases, boosting consumer spending, economists said. The jobless rate fell to 2.5 percent in the fourth quarter, the lowest in 4 1/2 years.
"We're incredibly short of people now,” Yoshiko Shinohara president of Tempstaff Co., Japan's second-largest temporary staffing agency, said in an interview. “With the economy improving, we're having trouble keeping up with the surge in demand."
Stop and check
The 5 key sources or types of unemployment are described below. Which type of unemployment do you think the 8 situations described above fit into?
The key types of unemployment
1. Cyclical unemployment is involuntary unemployment created by business-cycle recessions. Workers do not have jobs because aggregate demand and production in the economy are down.
2. Seasonal unemployment is relatively regular (read this as predictable) unemployment tied to a particular job. It is termed seasonal because it often occurs during particular seasons of the year.
3. Frictional unemployment is temporary unemployment created when workers switch jobs. The key with frictional unemployment is that the number of workers is equal to the number of jobs, it just takes time and information to match them up.
4. Structural unemployment is relatively permanent unemployment created because the skills of the workers are not the same as the skills needed on the job. Again, an equality between the number of workers and jobs exists, there is just a mismatch of skills.
5. Real wage (or classical) unemployment occurs when real wages are higher than the market-equilibrium wage. In simple terms, institutions such as the minimum wage, by raising the cost of hiring above the revenue generated when the additional worker is hired, deter employers from hiring all of the available workers.
Source and further reading:
1. Amos Web (http://www.amosweb.com/cgi-bin/awb_nav.pl?s=wpd&c=dsp&k=unemployment%20sources)
2. Wikipedia (http://en.wikipedia.org/wiki/Unemployment_types)
3. Tutor2U (http://www.tutor2u.net/economics/content/topics/unemp/unempcause.htm)