1. Economic growth does not include increase in spending for social welfare payments and unemployment programs. Discuss why does economic growth not include spending for social welfare payments and unemployment programs. Also discuss the consequences on economic growth if it includes social welfare payments.
2. Consider the types of unemployment and their consequences. Discuss whether structural unemployment more or less serious than cyclical unemployment.
1. The Law of Okun examines a statistical relationship between unemployment and economic growth. The Gross Domestic Product of a country mainly gets over as the rate of unemployment rises above the natural rate. As a result, there is always a negative relationship between economic growth and unemployment programs. The economic health is mainly measured with the help of economic growth as it takes into deliberation the development of a country. The Law of Okun mainly analyzes the gap between economic growth and unemployment. It is predicted that a rising unemployment mainly leads to decrease in economic growth. Economic growth generates opportunities for jobs and leads to employment. As a result, the relationship between economic growth and employment stays strongly positive. Hence, economic growth does not include unemployment programs as unemployment mainly increases during depression that leads to fall in demand for both commodities and services. Economic growth can produce righteous circles of wealth and opportunity. Economic growth does not include the unemployment programs as long-term rate of unemployment expresses to a deteriorating in skill levels and self-assurance. The unemployment programs provides an incentive to remain unemployed that reduces the economic growth.
On the other hand, social welfare payments are not included in the economic growth as it is a part of double counting. If social welfare payments are zero, in all probability there will be very less economic growth due to implementing contracts as well as shielding property. The main reason for which it is not a part of economic growth as social welfare payments involves costly financing choices as well as dislocation cost. The welfare payment encourages the individuals to choose leisure over work and as a result, it encourages destructive costs. A social welfare payment provides an inducement to remain unemployed. As a result, allocation of resources also is distorted and leads to incompetence cost (Johnson, 2013).
In case if economic growth is includes social welfare payments it will lead to slowdown in the economy. This is mainly because; Social welfare payments are connected with the exchange between the program of redeployment of income as well as monetary growth. If social welfare payment is included in economic growth, it will lead to lessening of lack of confidence with respect to rough as well as unanticipated expenditures.
2. A condition in which an individual in an economy is searching for as job is termed as unemployment. However, in such a situation an individual finds it difficult to get a job. There is a variety of unemployment such as cyclical unemployment, Structural unemployment, Voluntary and Involuntary unemployment as well as frictional unemployment. Cyclical unemployment is associated with business cycle that takes place in the economy. This type of unemployment takes place mainly during the recession period when demand for commodities and services in an economy decreases. The companies respond to this type of unemployment by cutting manufacture as well as putting down off employees rather than by reducing salary and costs. However, cyclical unemployment tends to disappear as the economy recuperates from recession or depression (Shimer, 2012).
Another type of unemployment is known as Structural unemployment that mainly takes place due to some labor markets that have more employees compared to the jobs available. However, under this type of unemployment wages does not diminish to bring the market into equilibrium. Structural unemployment also takes place when the skills of the employees are not in high demand and as a result, in spite of possessing high skills they are not able to get a job. In other words, a disparity takes place between the skills of the employees and the requirements of the employers. Structural unemployment is considered a momentous issue as it tends to be mostly of a long-term variety. Seasonal unemployment is a part of structural unemployment that takes place as the demand for few employees diverges broadly over the course of the year. Seasonal unemployment is mainly considered as a part of structural unemployment because the skills of the cyclic workers are not required in certain labor markets for at least some part of the time. However, seasonal unemployment is considered as less challenging as compared to structural unemployment. Similarly, when structural unemployment affects the local region of an economy, it is termed as regional unemployment (Diamond, 2013).
The most common type of unemployment is frictional unemployment that takes place as employees take some time to shift from one job to another. This type of unemployment is also considered as the easiest form of unemployment. However, with the progression of technology the workers and the businesses had found it easier to look for jobs in a more capable manner. While the workers search for a new job they are considered to be unemployed however; unemployment as a result of frictional unemployment is considered to last for only short periods of time. As a result, it is not considered a more problematic from the economic point of view. This type of unemployment also takes place when students shift into the labor force for the initial time.
Voluntary and involuntary unemployment is also a part of unemployment that takes place in the economy. Voluntary unemployment mainly takes place when an individual leaves his previous job at his own wish. Similarly, involuntary unemployment takes place when an individual is fired from his work. According to some economists, involuntary unemployment is a superior trouble as compared to voluntary unemployment.
As compared to cyclical unemployment, Structural unemployment is more serious issue as a cyclical problem can be solved by merely persuading monetary growth with low rates of interest. On the other hand, structural unemployment imitates a severe problem and it does not depart even if the financial recovery increases grip.
Diamond, P. (2013). Cyclical unemployment, structural unemployment. IMF Economic Review, 61(3), 410-455.
Johnson, H. G. (2013). International Trade and Economic Growth (Collected Works of Harry Johnson): Studies in Pure Theory. Routledge.
Shimer, R. (2012). Reassessing the ins and outs of unemployment. Review of Economic Dynamics, 15(2), 127-148.