Unemployment in the US
The gravity of unemployment on the American citizenry can be surmised by Thomas Carlyle when he said that, “ a man willing to work, and unable to find work, is perhaps the saddest sight that fortune’s inequality exhibits under the sun”. Unemployment in the USA today is a direct consequence of the devastating global recession which is one of the biggest threats to the world political, social and economic climate. Global recession presents as a macroeconomic crisis. However, before driving into the core of the unemployment crisis, it is prudent to offer a comprehensive analysis of the gradual developments.
Following the near bankruptcy scenarios in most investment and insurance companies in the early weeks of 2008, an acceleration towards a downward spiral began and as global recession became a reality in New York, so did the catastrophic effects spread to London and Moscow into all the G7 nations. As the equity prices fell, so were banks’ balance sheets damaged and an era of restricted lending ensued. The dramatic rising of the cost of short term credit, and drying up of liquidity ushered in the official recession and the shock waves emanating from the US financial markets reverberated globally.
The origin of the global banking crisis can be traced to the sub-prime mortgages. While these mortgages had offered millions of Americans to access home ownership opportunities, they carried with them an extremely high risk profile. Moreover, financial institutions based these mortgages on the assumption that in the long run, the housing prices would appreciate in value. Under such an assumption, the effects of borrower default would be enveloped by the expanding housing market which would improve on the lender’s financial position. However, housing valuations cooled and money market rates increased.
What followed next was that lenders remained with assets whose values were way below what their owners owed the institutions hence the credit crunch and foreclosures(http://forexmetrics. com/blog/? p=744). From the subprime mess to global recession, the impacts on unemployment have been nothing but grave. With specificity to unemployment, recession has three major consequences. First, recession has caused rising unemployment. According to the IMF forecasts in 2008, it was predicted that unemployment will rise from an already high of 5. 7%-6. 5% in 2009. The current unemployment rates stand at 8.
5% by April 2009 and are steadily rising since the early months of 2008. Secondly, recession causes large losses of unemployment in certain sectors, especially; real estate services and the construction industry. These two sectors have experienced disproportionate employment declines. Third, rising income insecurity is a matter of concern as more and more people continue to be lose their incomes. This trend is highly profound among lower income groups. Erosion of stock markets has effectively rolled back key investment gains and retirement savings are losing value.
(Sameer & McGirr 4) Those who are poor due to lower incomes are hard hit because they are unable to bear the challenges of job cuts and income slashes(http://www. financenewspro. com). High and persistent unemployment is a grave threat to social cohesion and security in the United States (Leitcht 153). Because lives are directly dependent on income, in the absence of social security protection, limited access to medical benefits and the inability to effectively feed ones family, the very building block of the society is threatened. Solutions to the Unemployment Problem
With increasing job losses, slowing job creation and increasing unemployment rates and working poverty, the country is not only reeling from the impacts of an economic recession but social recession as well. The potential security risks of such a scenario are just beginning to emerge. The disappearance of good and better paying jobs is pushing men and women to the informal economy where their survival is not even guaranteed. The current latest International Monetary Fund forecasts predict that the economy may only emerge from recession in 2010.
Even then the increasing rates of unemployment may only begin reducing in 2011. These statistics paint a grave picture for global jobs and also captures the level of frustration, anger and despair that awaits the millions of unemployed. Since loss of jobs has a direct effect on social protection of working families as well as their local communities, the prospect of serious social and political consequences cannot be overlooked. Thus, the unemployment problem calls for an urgent but comprehensive solution.
To solve the unemployment problem, the need for sustainable social protection, decent employment and sustainable enterprises cannot be overstated. All economic, social, financial and employment dynamics need to be interlinked into a strong policy response. Measures should be taken to speed up the economic recovery process, make it more job intensive hence providing a pattern for a sustainable economic growth characterized by social protection systems and functioning labor markets. There is need to create a global jobs pact.
The International Labor Organization is in the process of developing a response to the unemployment crisis to shape a productive and sustainable economic recovery. By strengthening employment policies and social protection the ILO Pact aims to improve international cooperation mechanisms so that less developed countries are given the capacity to counteract these economic cycles (Somavia 2). These changes can be possible when the ILO is in continuous collaboration with G20 nations and the international financial institutions.
Just like in the United States where the Security and Exchange Commission(SEC) establishes and executes financial regulations with regard to the stock exchange regulations, there is need to create a global Federal Reserve which will be responsible for strict financial monitoring and regulations global (http://www. ghandchi. com/). Such an institution will not only be beneficial on a global scale but also very influential in transforming the failing US financial system hence stabilizing jobs.
The ILO with its tripartite global constituency should fully support the establishment of a financial system that promotes productive investments, sustainable consumption, innovation and trade. IMF is on record on calling for the establishment of a functioning credit market to act as a foundation for a durable economic recovery and hence stabilization in employment rates. With a new and dedicated global financial regulatory institution in place, the focus will shift from speculative behavior of the stock markets and instead provide incentives for investment in sustainable enterprises be they large or small.
Such an environment of productive investment will undoubtedly generate decent jobs for the unemployed but qualified population. Since it is only through jobs and financial stability that economic growth can be said to be beneficial, the labor market needs to respond to economic recovery initiatives aimed at shaping a more balanced economy. Moreover, the biting impacts of unemployment can be lessened in the presence of an affordable or free access to social protection.
A sound social protection package should include modest cash benefits for children, a relatively acceptable pension package for persons with disabilities and the elderly members of the community. Access to basic health care should be guaranteed. All these are achievable without constraining the public budget. Moreover, since social protection is a very important investment in empowering the general citizenry and developing human capital, no cost is expensive because by empowering people and developing human capital, social protection promotes prosperity in enterprises and accelerates economic recovery and growth(Somavia 5).
To echo the words of Franklin D Roosevelt, “ Not only our future economic soundness but the very soundness of our democratic institutions depends on the determination of our government to give employment to idle men(http://www. entplaza. com/). Apart from these long term measures of reforming the economy, financial rescues, fiscal stimulus packages, and the establishment of global reformatory institutions, the United States should strive to strengthen income maintenance measures among the unemployed.
Such measures includes but not entirely restricted to boosting unemployment benefits, giving incentives to those employers who temporarily retain workers and also strengthening other complementary cash transfer programs. The government also needs to expand social protection measures and protect pensions. Vulnerable sectors and employment groups such as youths should receive targeted support in terms of temporary youth employment programs. Legislations which favor a strong and active labor market policy should be encouraged so as to support the remaining employment and earnings.
This can be done through the introduction of wage subsidiaries, temporary payroll tax holidays and also through the expansion of training programs to those who are unemployed. An expansion of the training programs will make workers to be flexible in switching jobs. Finally, serious efforts should be directed towards the development of workers’ skills in preparation for economic recovery and consequently rising labor demands.
Charles. Global Recession, unemployment debt and finding a way out.Finance News Pro. May 14, 2009. http://www. financenewspro. com/global-recession-unemployment-debt-and-finding-a-way-out/ Ghandhchi, Sam. Unemployment Cannot be Resolved by the Proposed Solutions. http://www. ghandchi. com/558-unemploymentEng. htm “How Important is Unemployment Rate: Unemployment Rate for Recovery from Global Recession of 21st Century”. http://forexmetrics. com/blog/? p=744 Leitch, Michael. A Reformed European Model: Social Capital as Competitive Advantage. GRIN