Macroeconomic Issue Paper Essay

Financial crisis has changed our vision of the future. We are scared by the growing unemployment rates and are not confident whether tomorrow economy will bring any positive changes. Non-economists use unemployment rates to determine, how well international and the U. S. economy performs; in simple terms, the growing unemployment rates suggest that we are at the edge of the deepening economic recession. Many of us keep to a misleading opinion that the growing unemployment is the direct result of the current financial collapse. In its recent article, the Economist (2008) sheds the light onto the major unemployment controversies that also impact real GDP, consumption, and speed up the development of the credit crisis spiral. Macroeconomics of the growing unemployment in the U. S. The Economist (2008) provides the detailed review of statistics and economic implications of the growing unemployment in the U. S. â€Å"On Friday November 7th he [Barack Obama] got the news that unemployment had shot up to a 14-year high of 6. 5% in October and non-farm employment had plunged by 240,000 from September† (The Economist, 2008). The figures are threatening, but despite the persistent opinion that the current financial crisis is the direct cause of unemployment, the Economist (2008) suggests that â€Å"whereas it had been thought that the financial crisis pushed a teetering economy over the edge, it now looks like the crisis kicked an economy that was already down†. In other words, unemployment rates had been gradually rising even before the notorious bankruptcy of Lehman Brothers. What makes current unemployment different from all previous crises is that those losing their jobs do not leave labor force as quickly as they used to; â€Å"that may be because losses on retirement savings and homes have deprived many of the option of sitting out of the workforce for a spell† (The Economist, 2008). In any case, the growing unemployment may threaten the stability of the U. S. economy in short- and long-run, and macroeconomic consequences of the growing employment instability may slow down the process of economic recovery in the United States. From the macroeconomic viewpoint, â€Å"a person who is able and willing to work yet is unable to find a paying job is considered unemployed. The unemployment rate is the number of unemployed workers divided by the total civilian labor force, which includes both employed and unemployed and those with jobs (all those willing and able to work for pay) – (Layard, 2005). Although the majority of the U. S. population tends to evaluate the quality of national economic performance through the prism of the changing unemployment rates, these rates are notoriously difficult to measure. As a result, we frequently lack objective view of the way unemployment impacts our economic achievements. Unemployment tends to produce irreversible macroeconomic effects and requires that state authorities and financial institutions develop sound macroeconomic policies, to minimize and prevent the long-term consequences of the deepening economic recession. In general terms, poverty, crime, and healthcare issues are the three direct consequences of the growing unemployment. In terms of economics, unemployment severely impacts purchasing activity and leads to long-term real GDP decrease. Under the growing unemployment pressures, we are unlikely to use all available financial and non-financial resources to the fullest. â€Å"Much unemployment – called deficient-demand or cyclical unemployment – thus represents a profound form of inefficiency, sometimes called Keynesian inefficiency† (Layard, 2005). The results of profound statistical analysis imply that we have not yet hit the bottom of the economic crisis (The Economist, 2008); simultaneously, it is very probable that statistical figures are at least distorted and do not form an objective and realistic vision of what processes are currently taking place in the national economy. The problem is not in that the United States is going to become the largest international source of potential job-seekers. The problem is in that the United States cannot produce relevant and reliable statistical figures that would help address the growing unemployment rates before they hit the record. Macroeconomics lacks one single universal method for measuring unemployment rates. The U. S. Bureau of Labor Statistics counts employment and unemployment on the basis of the weekly survey; â€Å"people are considered employed if they did any work at all for pay or profit during the survey week† (Layard, 2005). As a result, the BLS does not account full-time students and prisoners as employed. Furthermore, those who are jobless but are actively involved into job search are also considered as unemployed. Economic professionals seem to omit the whole population layer, including students, retired, and people with mental and physical disabilities – according to BLS these people are neither employed, nor unemployed. When we hear that unemployment rates have reached 6. 5%, what does that mean? Does that mean that 6. 5% of the American population is no longer willing to work? Does that mean that 6. 5% of population is actively looking for new jobs? Does that mean that 6. 5 percent of the U. S. population is likely to remain unemployed in the long-term period? Statistical research does not provide the answers to these questions. That is why it is very probable that the Economist (2008) operates unreliable measurements and risks distorting the real picture of the American labor market. Macroeconomics lacks agreement as for the causes and the consequences of unemployment. When the Economist (2008) implies that we are facing the challenges of cyclical unemployment, the real causes of unemployment may vary. According to Keynesian theory, â€Å"the main causes of unemployment result from insufficient effective demand for goods and economy† (Layard, 2005). Some economists are confident that the current economic crisis can hardly be the direct cause of the growing unemployment, and that structural unemployment does not threaten economic stability. From the viewpoint of classical macroeconomics, minimum wages and taxes may severely change the balance of forces in the U. S. labor markets. Regardless the exact cause of unemployment in the U. S. , non-economic population lacks relevant instruments that would help re-interpret statistics. We are used to the thought that statistical analysis is the source of reliable and unbiased information and that statistics may open the gateway to understanding the real causes and economic implications of the current financial difficulties; yet, the time has come when the methodology and analytical instruments behind statistics need to be reconsidered. I am confident that while statistical unemployment may cross all reasonable boundaries, the real picture of unemployment may be completely different. Certainly, thousands of people are being laid off and drown in the unemployment pool against their will, but the existing methods of economic and statistical analysis must also be refined; otherwise the coming years are unlikely to being economic relief to the American labor markets. Conclusion Statistical research suggests that the rates of unemployment in the U. S. have reached unbelievable 6. 5%. The Economist (2008) writes that the current financial crisis may not necessarily be the direct cause of the current unemployment shakes. Regardless the specific causes and consequences of unemployment in the U. S. , the national economy lacks relevant economic instruments that could be used to measure statistical variations in labor markets. Macroeconomic theorists lack unanimous agreement on the way unemployment should be defined and measured. The time has come when the major macroeconomic indicators and the means of measuring them should be refined. Non-economists are misled by inaccurate statistical data that causes panics in the labor markets. Unless we are able to evaluate the full labor market potential, and until we are confident that the results of the statistical analysis are at least close to reality, we will not be able to develop reasonable macroeconomic policies, and will fail to protect national economy from the deepening crisis. References Layard, R. (2005). Unemployment: macroeconomic performance and the labor market. Oxford University Press. The Economist. (2008). A painful job to do. November 7th. Retrieved November 18, 2008 from http://www. economist. com/research/articlesBySubject/displaystory. cfm? subjectid=348876&story_id=12583077