The Issues and Effects of Unemployment to the Economy

INTRODUCTION

This paper discusses how unemployment and the economy impact public administration in the United States. It begins by explaining that unemployment is nearly always a negative situation for any economy. Following the recent recession which began during 2007, the United States has had relatively high levels of unemployment. The unemployment situation for younger Americans is especially dire. Among individuals aged, 16 to 19 years in the United States the unemployment rate is higher than 22%.

Following the discussion of the issues related to unemployment and the economy, the paper goes on to discuss how these issues affect public administration. There is a discussion of how high unemployment has forced public administrators to address issues regarding additional jobs as well as the economy in general. There is a discussion of both the liberal and conservative views on alleviating these difficulties. The last two sections of the paper include recommendations for reducing unemployment problems and the outlook over the next decade.

THE ISSUES

Unemployment is considered as a negative situation by both academics and economists. While there is always some level of unemployment, when the rate of unemployment is substantially elevated there is a cost to the country, society, and individual. This also affects individuals working in public administration. The unemployment rate is a reference to the number of people working in the civilian labor force and dividing this by those who are not gainfully employed but wish to be. An individual is not counted as unemployed if they are not actively seeking work. This could be due to retirement, health problems, independent wealth, or a variety of other reasons.

For several years since the economic crisis of 2007, the United States has remained in a recession with high levels of unemployment. During November of 2007, the unemployment rate in the United States was 4.7%. During October of 2009, the unemployment rate reached 10%. During May of 2013, there were 165,000 jobs added to be US economy. While this was better than was expected, the unemployment rate remains relatively high at 7.5%. This modest growth is considered insufficient to decrease the rate of unemployment United States. In fact, the unemployment rate dropped from 7.6% to 7.5%, which is only a 0.1% changes.

Part of the reason that there has been a hiring slowdown during 2013 from earlier in the year is thought to be the payroll tax which was increased by 2% in January. This means that the average earning American will have approximately $800 less to spend annually. There were also spending cuts by the government which was referred to in the media as sequestration or the "fiscal cliff." The decreasing paychecks and the reduced money coming from the US government have led to a curbing of the demand for goods. This means there is less demand for employees.

The unemployment problem is particularly noticeable among younger Americans. There is an unemployment crisis among young Americans, which has multiple forms. This problem includes high-school students who are experiencing difficulties finding evening jobs. Millions of young Americans in their 20s find themselves working unpaid internships. Many recent college graduates are forced to take lower skilled jobs, which pay less.

The scope of the unemployment crisis among youth in the United States is staggering. The problem is substantially greater than most lawmakers have indicated. There are over 10 million Americans who are younger than 25 years of age that cannot find full-time work. This is an amount which is greater than the population of Los Angeles or New York. This unemployment crisis can have enduring costs for government, businesses, society, and individuals. The unemployment rate for Americans between the ages of 16 and 24 years during the first quarter of 2013 was 16.2%. The unemployment rate for individuals aged 16 to 19 years was even higher at 22.5%.

The deleterious consequences of high levels of use unemployment are becoming more obvious (Rose). Many recent college graduates cannot make the required payments on student loans. They may also be forced to delay saving money for their retirement and may even be forced to move back to their parents' home after graduating from college. It has been estimated that 82 graduates from college and has a period of unemployment, which lasts six months will lose approximately $23,000 of wages while unemployed, as well as an additional $22,000 in lower wages after they are employed.

Effects of the Issues on Public Administration

Economic difficulties and a high unemployment rate in the United States has forced public administration to address these issues. All major political parties have debated on the best solutions for decreasing unemployment. The majority of liberals contend that the US government should engage in stimulus spending. Those in the conservative camp argue that fewer federal regulations and a lowering of taxes will stimulate the economy. A number of polls have indicated that most Americans believe lowering unemployment is the most important goal for public administration at this time. Most Americans are also of the opinion that a primary solution to unemployment in the United States is to decrease the amount of jobs being outsourced to overseas companies. The United States presidential campaign of 2012 focused on the creation of jobs.

During 2008, the United States Federal Reserve was forced to take action to stimulate the economy following in an attempt to pull the United States out of an economic recession. From 2008 until 2012, the Federal Reserve expanded its own balance sheet. This means that additional money was printed in order to purchase U.S. Treasury bonds and mortgage-backed securities. This bidding increased bond prices and helped interest rates to remain low. This was done in order to encourage corporations to invest and borrow money for expansion. It was also hoped that this would encourage individuals to purchase homes. During 2012, the US Federal Reserve first announced that its actions would be influenced by inflation and the unemployment rate.

Following the recession of 2008, the United States increased its deficit to more than $1 trillion. The gross domestic product (GDP) produced in the United States is roughly $15 trillion annually. This means that the spending associated with the deficit is particularly alarming since it is at about 6.67% of the GDP. According to those who support Keynesian economics, an increased budget deficit will encourage economic growth. However, many conservatives point out that fewer government restrictions placed on the private sector will result in free market opportunities that make for a healthier economy. With this line of thinking, the government should move away from attempting to influence the economy. These people are nearly always opposed to governmental bailouts and stimulus spending. They lobby for deregulation and the reduction of tax rates. The conservatives favor free trade agreements over labor unions.

During September of 2011, the president of the United States, Barack Obama, proposed the American Jobs Act. This consisted of two bills, which were proposed by the president during a televised address to the joint session of Congress during September of 2011. This proposal by the President was a direct result of continued unemployment and economic difficulties in the United States. The speech was aired on all major television networks in the United States during prime time. It was estimated that more than 30 million people viewed this address.

The American Jobs Act included several elements. This was a $447 billion bill which suspended or cut more than $240 billion in payroll taxes as well as $160 million in taxes for low and medium income employees. There was also $62 billion allotted for the Pathways Back to Work Program. The bills also included extended unemployment benefits and tax credits for those who had been unemployed for a long period of time. This act is still being debated.

RECOMMENDATIONS

A wide range of solutions for reducing unemployment in the United States are plausible. One of these solutions involves tax policies. If the US government develops policies, which eliminate the threat for tax increases, this could encourage employers to expand and hire new workers. It may also encourage consumers to more freely spend. Unfortunately, this has the possibility of increasing the national deficit. Part of this recommendation was embodied in the American Taxpayer Relief Act of 2012, which reduced a broad range of taxes, which would have increased with the expiration of the tax cuts put in place by the Bush administration.

Another way of possibly reducing unemployment is to lower the cost for employers to hire additional workers. This can be accomplished through the reduction of Medicare payroll taxes and Social Security. There can also be tax incentives put in place for the hiring of new workers. The Social Security payroll tax was reduced by President Obama for the 2011-2012 years. This allowed consumers to spend approximately $100 billion, which would otherwise not have been available. Unfortunately, this policy added a similar amount to the federal deficits.

Despite the United States having one of the highest corporate tax rates in the world, corporations in the United States are able to take advantage of tax loopholes and pay lower rates in relation to GDP than in nearly all other developed countries. If the tax rates were reduced and the loopholes eliminated, businesses in the United States could be more competitive with foreign corporations. Unfortunately, this would also add to the national debt.

A diminution in income inequalities in the United States is also likely to lead to reduced unemployment. The income inequality in the US is expressed through stagnation in wages for lower and middle-income households. There has also been a growth in income for the top earning workers in the United States. Both conditions can lead to a reduced level of economic growth. This is because wealthier individuals and families are likely to save more of their income.

A reinvigoration of the labor movement could be beneficial to the US economy and a reduction of unemployment. Both the pay and quality of employment are important. It is not enough to add jobs to the economy. There has been a reduction in the union movement. This is led to an enhancement of income inequalities in the United States as well as increasing levels of outsourcing to offshore companies. Unions have the potential for the creation of higher-paying jobs for low to middle-income earners. This would shift money back to the middle and lower-income groups. Unfortunately, this could have a negative effect by increasing the cost to companies of employing additional workers.

The trade policy of the United States could also be used to decrease the unemployment level. A more equal status with trading partners could allow for additional jobs to be created in the United States. There is frequently a currency manipulation as well as standard differentials which exist that make free trade nearly impossible. If trading partners were allowed to have their currencies flowed freely within the international market, there could be a resulting reduction in trade deficits. This would lead to additional jobs in the more developed countries of Western Europe as well as the United States.

Outlook

During 2011, one of the top economic advisers, Paul Volcker, to United States President Barack Obama, announced that he was not aware of any short-term methods for reducing the unemployment rate in the United States. He made this comment following an announcement of the United States Federal Reserve that it would purchase roughly $600 billion in United States treasury bonds. This is done in order to lower the long-term interest rate. It was believed that this would increase spending and thereby lower the unemployment rate in United States. This was done after the United States had previously purchased $1.7 trillion in treasury bonds and mortgages.

It is anticipated that the growth in the United States will remain slow throughout 2013. However, it is also anticipated that there will be a gradual improvement in many economic factors, including unemployment. It is furthermore expected that both interest rates and inflation will rise as well. It has been predicted that the unemployment rate in the United States would exceed 7.5% through the end of 2014. On a more positive note, the government deficit is expected to shrink to $845 billion by the end of 2013. This is the equivalent to roughly 5.3% of the GDP. This deficit is expected to continue to be reduced reaching a low of 2.4% of the GDP by the end of 2015. However, the deficits are expected to increase prior to 2020 due to the population of the United States growing older and healthcare costs continuing to rise. This problem may be exacerbated by the expanding subsidies of the US government for health insurance. If there is no correction in economic policies, which are now in place, by 2023 the United States debt will amount to 77% of its GDP.

The United States economy runs in cycles from between four and six years. The ever so slight bull market which now exists has been present for approximately four years. This means that a downturn in the economy is likely sometime within the next two years. This may be of significant concern to many as the market is considered to be only slightly bullish. Even though the financial markets appear to be performing well, most Americans are not enjoying high levels of prosperity. There is a high level of unemployment and household debt continues to be high. The GDP is flat.

While there has been consumer driven hiring during 2013, the industrial part of the economy continues to struggle. The softening of the growth in China and the recession in Europe has led US factories to have fewer overseas prospects for sales. During May of 2013, the manufacturing industry in the United States lost 8000 jobs. This is added to the 9000 jobs which were lost in April and another 4000, which were lost during March of 2013. On a more positive note, the sustained growth of the US economy has begun to lure job seekers back into the market. The workforce grew by 420,000 people during May of 2013.

If public administration does not make the necessary economic policy changes, the federal debt will be more than 73% of the GDP. This means that policy makers must address this problem before the deficit is so high that it is nearly impossible to reduce. The overall outlook for the next 10 years is for there to be a slow decrease in unemployment and slight increase in economic health of the United States.

CONCLUSION

This paper was an examination of unemployment in the United States, and the impact that this has on public administration. It began by exploring how unemployment is negative for nearly all stakeholders. It examined how unemployment has been a consistent difficulty in the United States since the economic problems began in 2007. Unemployment among youth in the United States is especially problematic with rates as high as 22%.

After completing the discussion on the issues related to unemployment, there was discussion on how these problems have affected public administrators and their policies. The problematic combination of high unemployment and economic recession has led public administrators to debate on both the conservative and liberal side of fiscal solutions. It is expected that over the next 10 years unemployment and a mild recession will continue to be a problem. However, it is also expected that both difficulties will slowly decrease over the next 10 years. This assumes that there is not another disastrous financial situation such as that which began to occur during 2007.

References

Beyers, W. B.. The Great Recession and State Unemployment Trends. Economic Development Quarterly.

Blau, G., Petrucci, T., & McClendon, J.. Exploring the Impact of Demographic, Personality, and Job Reattainment Variables on Unemployment-Delayed Retirement Intent. Journal of Workplace Behavioral Health, 28(1), 13-29.

Hou, Y.. From Economic Stabilization to Budget Stabilization. In State Government Budget Stabilization (pp. 15-30). Springer New York.

Luechinger, S., Schelker, M., & Stutzer, A.. Governance, bureaucratic rents, and well-being differentials across US states. Oxford Economic Papers.

Mahdavi, S., & Alanis, E.. Public expenditures and the unemployment rate in the American states: panel evidence. Applied Economics, 45(20), 2926-2937.

Neumark, D.. Spurring Job Creation in Response to Severe Recessions: Reconsidering Hiring Credits. Journal of Policy Analysis and Management,32(1), 142-171.

Primavera, H.. An Economy for the Common Good with Social Currencies. Beyond Capitalism: Building Democratic Alternatives for Today and the Future, 71.

Rose, N. E.. Bring Back the WPA: Lessons from the Job Creation Programs of the 1930s. Employment Guarantee Schemes: Job Creation and Policy in Developing Countries and Emerging Markets, 155.

Squires, G., & Hall, S.. Lesson (un) learning in spatially targeted fiscal incentive policy: Enterprise Zones (England) and Empowerment Zones (United States). Land Use Policy, 33, 81-89.

Suominen, K.. counterproductive adjustment? United States after the great recession (No. 11). Transworld Working Papers.

Upadhyay, M., & Mason, T.. The Financial Crisis and the Great Recession in the United States. In Recession and Its Aftermath (pp. 23-45). Springer India.

Welfe, W.. Macroeconometric Models of the United States and Canada. In Macroeconometric Models (pp. 15-46). Springer Berlin Heidelberg.