A Problem That Destabilize the Economy:Unemployment Rate
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A Problem That Destabilize the Economy:Unemployment Rate

Understanding the factors that destabilize the economy is hard. This article aims to help the readers understand the unemployment rate which is one of the factors that affects economy as well as the kinds of unemployment.

 A Problem that Destabilize the Economy

The American economy experiences ups and downs in its overall business activity-booms, recessions, and even depressions. To keep the economy healthy and to make the future more predictable for planning, saving, and investing, the federal government uses monetary and fiscal policies. Together these are called stabilization policies. Unfortunately, neither policy is always successful in solving the complex problems of the economy. Two of the biggest threats to the nation's economic stability are high unemployment rate and too much inflation.

Measuring Unemployment

The unemployment rate is the percentage of civilian labor force that is without jobs but that is actively looking for work. High unemployment is usually a sign that all is not well with the economy. Moreover, the waste of human resources that unemployment causes is an extremely serious problem. Unemployment can reduce living standards, disrupt families, and take from an individual his or her feeling of self-respect. As a result, maintaining a low unemployment rate is one of the major goals in stabilizing the economy.

Types of Unemployment

1) Cyclical - Unemployment associated with fluctuations up or down in the business cycle. Raises during recessions and depressions. Falls during recoveries and booms.

2) Structural- Unemployment caused by changes in the economy such as technological advances or discoveries of natural resources. Can result when workers are replaced by computers or other machines or when cheaper natural resources are found elsewhere. Often affect less skilled workers.

3) Seasonal- Unemployment cause by changes in the seasons or weather. Affects construction workers, particularly Northeast and Midwest. Also affects farm workers who are needed in certain areas only during certain months of the growing season.

4) Frictional- Temporary unemployment between jobs because of firings, layoffs, voluntary searches for new jobs or retraining. Always exists to some degree becaise of the time needed to find new work and the imperfect match between openings and applicants.

In the 1960s, some economists thought the unemployment rate should not exceed 4 percent. This figure raised to 5 to 6 percent in 1970s. After much careful study, economists generally have come to consider the economy at full employment when the unemployment rate is 6.5 percent. It is important to remember that the unemployment rate is only an estimate. The unemployment rate does not include people who are out of word and have stopped looking for work. Nor does it include people who work in family businesses without receiving pay.

Economist classify unemployment into four broad categories: cyclical, structural, seasonal and frictional. Most of the people who are in these unemployment categories are out of work because of forces beyond their control. Unemployment is difficult to measure accurately because government statisticians cannot possibly interview every person in and out of the labor force. Survey results are also imperfect because of the existence of underground economy. The underground economy consists of people who do not follow federal and state laws with respect to reporting earnings.

The Underground Economy includes:

1. Tax Avoiders- These peope work for cash payments without reporting ther earnings to the Internal Revenue Service.

2. Gamblers and Drug Traffickers- These people may be working, but will deny they are when interviewed by government officials.

3. People Working "Off the Books"-These people are oficially unemployed and are receiving unemployment benefits but are really working.

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Comments (1)

another great article my friend