Unemployment in the Labor Market Is Primarily Voluntary - Essay Example

Name : xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Tutor :xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Title : Unemployment in the labor market is primarily voluntary Institution : xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Date :xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx @ 2012 Introduction Voluntary unemployment is a situation whereby those who are unemployed have made the choice to be unemployed. Voluntary unemployment often exists where people opt not to work because they think that wages at the equilibrium in the labor market are not high enough to justify their being at work. Such people instead, can prefer receiving benefits (Hughes, Pearlman 1984 pp. 111). Voluntary unemployment is promoted by welfare because some people think it wise to enjoy leisure for 24 hours every day instead of getting jobs. With welfare this is possible. When the welfare payments are high more people opt for welfare instead of going to work. Unemployment is a real problem in the United Kingdom, Europe and in the global labor market (Hughes, Pearlman 1984 pp. 114).This paper presents a discussion on the topic ‘Unemployment within the labor market is primarily voluntary’. Points for and against this topic will be discussed with special focus on the UK, European and global labor markets. Past unemployment trends The UK labor market, the European and the world labor market all at the moment or the recent past have had high rates of unemployment that in certain places are coming down especially after the recession. The rate of unemployment is the economically active proportion not in employment or the unemployed divided by those who are in paid work or unemployed. From the denominator and numerator the number of the economically active is excluded. In the UK during the last recession the rate of unemployment for people between 16 and 24 years rose sharply from 15% in the year 2008 to 19% in the year 2009 and 20% in 2010. This rate had been on a growing trend for some years prior to the recession. In 2004 it was 12% before rising to 15% in 2008 (Hughes, Pearlman 1984 pp. 123). In the EU in the year 2000 less that 9% of the entire labor force was out of employment. The rate fell to 8.5% (19 million) in 2001 before it rose to 21 million in 2002 and remained so up to 2005. From the middle of 2005 there was a decline in unemployment for some years in EU. In early 2008 it had gone as low as 16 million people (6.7%) before it rose sharply to because of the economic crisis. The global labor market has had similar trends in unemployment. In the year 2000 the rate of unemployment in the US was 4%, a rate lower that that of the EU at the time. It remained lower till 2008 when it rose rapidly. By the middle of 2009 US unemployment rate was equal to that of the EU. Rates of unemployment in Japan were lower than that of the EU. All the advanced economies of the world have had to go through difficult times of unemployment but some countries have worse rates when compared to others. Both the US and Canada have gone through massive loss of jobs in the recession. The rate of unemployment in the US is approximately 9.5% while that of Canada is 8.4%. Voluntary unemployment As stated earlier, voluntary unemployment happens because of the choice of the people that are out of employment. In the UK and the European Union, part of the population that is unemployed is that condition because of their own choice. The arrangement whereby the unemployed survive on welfare is present in the UK and the European Union as well as in other countries in the world. Voluntary unemployment in the labour market economy may come about when workers leave their jobs voluntarily so that they can have a change of careers. These workers may take a long time before they secure another chance of employment. The frequency that this happens is often enough to cause natural unemployment.’ Wages at the equilibrium in the labor market in the UK has discouraged a huge number of people from taking up jobs. These people live on unemployment benefits or unemployment doles (Greve 2006 pp. 102). In the recent past, the amount of people claiming unemployed doles or unemployment benefits rose tremendously. This can be blamed on the level of unemployment that increased as discussed above. Based on the UK’s official data on unemployment, January saw the number of people seeking employment benefits increase very sharply. Unemployment in the UK labor market is primarily voluntary because many people think that the wages are low and that they cannot sustain them in work. The economy of the UK looks like it has not recovered fully from the problems of the Global Financial Crisis that affected many economies in the world. Past UK labor market figures have shown that 1300 people are added to the unemployment doles on daily basis (Maddison & Wilpstra 1982 pp. 139). This translates to more that 390,000 people every year. When people are not willing to work for whatever reason such as low wages they find it easier to register for unemployment benefits. Of those who are unemployed in the UK the majority claim to be out of employment because they cannot work for the wage rates that currently prevail in the labor market. There are other reasons for unemployment and many people can be found in other unemployment categories. However voluntary unemployment seems to be attractive to many people (Hughes, Pearlman 1984 pp. 152). The global financial crisis affected the labor market in away that due to dwindling business many companies and employers could not afford to pay the amount of wages that their employees and job seekers would want to have. This contributed to keeping many people at home who could have been in employment if the wage rates were satisfactory high. It is interesting to note that a study done on the opinium panel on youth unemployment in Britain (Hughes, Pearlman 1984 pp. 123) revealed that the major causes were immigration, lack of entry points for youths and companies failing to hire. Immigration was cited to be the biggest contributor to this type of unemployment with 47% of respondents supporting it. However this view was held by 55% of those over 55 years while 68% of those between 18 and 34 years old refused to agree with them. Voluntary unemployment seems to be popular among the older people who have accumulated experience in their careers and their value has gone up. They are easily tempted to turn down job offers and opportunities because of the wages rate or opt to sit and wait for a better job as they survive on unemployment welfare provisions. The labor market in the UK has many issues and these have their role to play as far as the high unemployment rates are concerned and therefore joblessness is to a bigger percentage involuntary (Buti, Sestito, Wijkander 2001 pp. 36). In the European Union many countries support the unemployed through welfare provisions. This has also contributed to growth in voluntary unemployment in these countries. Different European countries have varying unemployment rates though. However a considerable percentage of these people are those who do not work because the wage rate is too low for them. However the case might not be the same in all the countries in the European Union. There are other countries where the type of unemployment prevailing there has been influenced by other factors. This is to say that just a few people are out of employment willingly (Maddison & Wilpstra 1982 pp. 156). The rate of output productivity growth in the EU has been found to be lower when compared to what it was in 1973 during the Golden age. This slow down has tremendously reduced the returns so that new job slots are not being created and therefore unemployment is rising. Countries that had a bigger fall in their rates of productivity had a big rise in the rate of unemployment. The length of the spells of unemployment in Europe in higher just as the percentage of long term unemployment is. It is important here to ask if really the relatively generous welfare schemes in the European Union are the ones to blame for this. Despite the generous welfare provisions of counties in the EU, rates of unemployment were half the rates of the US during the Golden age. The welfare state of the EU countries didn’t grow more generous during the 1970s (Buti, Sestito, Wijkander, 2001 pp. 47). It is important that we agree here that the generosity of this welfare state is not the prime mover that makes unemployment to increase. However the high welfare provisions can be used to explain why high unemployment persist longer after transitory disturbances like the shocks in the prices of oil have gone. Analysts often argue that the unemployment problem in Europe is caused by the high job security levels and the sclerotic nature of labor markets. Many proposals made for curing the EU unemployment problem among them the OECD jobs study have called for extensive deregulation so that flexible labor markets like those of the US can be created (Symes 1995 pp. 38). A similar pattern as the European one can also be found on the global scene. Most of the wealthy and prosperous economies such as Japan, Saudi Arabia, China and the US among many other have benefit or welfare schemes for the unemployed. However the case is not the same for poorer economies. In many of the third world countries voluntary unemployment is very rare since competition for jobs is very high (Greve 2006 pp. 88). People take up wages even if the wage rate is below their expectations and work to earn a living since there is no welfare, unemployment doles or schemes for those out of employment. In many of these countries with struggling economies the prevalent forms of unemployment are structural, involuntary and the others. People who don’t have jobs are in that state because of certain unfavorable factors in the labor market which is beyond their control. In most of the African countries fro example where the rates of unemployment are very high unemployment for the majority of people is there because if the socio-economic environment of the people which includes market structure, aggregate demand level and intervention from the governments. In Zimbabwe for example where the rate of unemployment has risen to a high of 90% (Greve 2006 pp. 100), in the past, much of the unemployment is involuntary because many workers were fired because of economic crises, bankruptcy of companies, industrial decline and restructuring of organizations among other reasons. In these terms, much or most of frictional unemployment is voluntary, since it reflects individual search behavior. Voluntary unemployment includes workers who reject low wage jobs whereas involuntary unemployment includes workers fired due to an economic crisis, industrial decline, company bankruptcy, or organizational restructuring (Greve 2006 pp. 100). Conclusion In conclusion the paper has discussed the claim that unemployment in the UK, EU and the world is voluntary. It is clear from this essay that voluntary unemployment affects UK citizens but it is not the sole cause of unemployment. There are several other unemployment causes that work together with it. However the rate of people registering for unemployment doles in the UK has been observed to rise at an alarming rate in the past. Unemployment welfare provisions in European Union countries are very generous compared to other countries out of the EU. One would easily blame this on the high rates of unemployment. Such an assumption would be wrong. The EU and the UK have had to go through hard economic times in the past which led to problems in their labor markets. These problems brought about a lot of the other types of unemployment that are not voluntary in nature. Among the types of unemployment existing in these countries, voluntary unemployment rates very low. The global unemployment pattern presents another different picture. In countries with prosperous economies like Japan, China and Saudi Arabia which has huge oil revenues, welfare benefits are a possibility. Nevertheless much of the unemployment in these countries cannot be said to be voluntary. Poorer countries such as those in Asia and Africa can hardly talk of voluntary unemployment because their rates of unemployment are very high and therefore competition for available jobs is also high. Many of such countries have no welfare provisions and therefore people hardly stay out of employment willingly. It is important to mention therefore that the statement ‘unemployment within the labor market is primary voluntary is false’. Bibliography Buti M., Sestito P. Wijkander H., (2001) Taxation, welfare and the crisis of unemployment in Europe; Routledge Greve B. (2006) The future of the welfare state: European and global perspectives; Ashgate publishing Hughes J.J., Pearlman (1984) The economics of unemployment: A comparative analysis of Britain; Cambridge University Press Maddison A. & Wilpstra B.S (1982) Unemployment the European perspective; Taylor & Francis; 180 pages Symes V. (1995) Unemployment in Europe: Problems and policies; Routledge 216 pages Read More