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Unemployment Solutions and What's Most Cost-Effective

The Best Way To Solve High Unemployment

Erika Rasure is globally-recognized as a leading consumer economics subject matter expert, researcher, and educator. She is a financial therapist and transformational coach, with a special interest in helping women learn how to invest.

solve unemployment problem

Monetary Policy

Fiscal policy, the most cost-effective solution, fiscal policy risks, the bottom line, frequently asked questions (faqs).

The solution for unemployment is, of course, to create new jobs. The number of jobs that need to be created depends on the unemployment rate and the number of people entering the labor force in search of work. When unemployment creeps above 6% to 7% and stays there, it means the economy can't create enough new jobs. That's when the government steps in.  

For historical data on U.S. unemployment trends, the Bureau of Labor Statistics publishes the  unemployment rate by year .   It reports the annual percentage of the unemployed in the labor force, as far back as 1949. It also indicates the success or failure of the fiscal and monetary policies through the years, since they affect the rate of unemployment. 

The first solution is  expansionary monetary policy from the Federal Reserve. It's powerful, quick, and effective. Lower interest rates make it easier for families to borrow what they need. That includes expensive items like cars, homes, and consumer electronics. It stimulates enough demand to put the economy back on track. Low-interest rates also allow businesses to borrow for less. That gives them the financial capital to hire enough workers to meet rising demand.  

If the recession is really severe, then monetary policy might not be enough on its own. That's when fiscal policy is needed. The government can either cut taxes or increase spending to stimulate the economy. An expansionary fiscal policy  is slower than monetary policy to get started. It takes time for Congress and the president to agree on the next steps, but it can be more effective once executed. It also provides much-needed confidence that the government will turn things around. Confidence is crucial for convincing people to spend now for a better future.

Cutting taxes works like lowering interest rates. Both give businesses and consumers more money to spend. That increases demand. It gives businesses more cash to invest and hire more workers. 

Government spending can also take the form of jobs programs. The government can hire employees directly. It also contracts with companies to build things and provide services. It provides consumers with the cash they need to buy more products.

Dollar for dollar, what's the best investment that creates the most jobs? A University of Massachusetts Amherst study found that  building mass transit  is the most cost-effective solution. One billion dollars spent on public transportation creates 19,795 construction jobs.

Unemployment benefits can provide growth as well. According to Wayne Vroman, an economist and senior fellow at the Urban Institute for the Department of Labor, unemployment insurance led to the creation of 1.6 million jobs on average each quarter from 2008 to 2010. The unemployed are most likely to spend every dime they get. They buy basics like groceries, clothing, and housing. As a result, every dollar spent on unemployment benefits stimulates $1.64 in gross domestic product.

How can $1 create $1.64? It does it through the ripple effect. For example, a dollar spent at the grocery store pays for the food. It also helps pay the clerk's salary, the truckers who haul the food, and even the farmers who grow it. The clerks, truckers, and farmers then buy groceries. This ripple effect keeps demand strong, creating added benefits. Stores keep their employees to supply the goods and services the unemployed need. Without these benefits, demand would drop. Then retailers would need to lay off their workers, increasing unemployment rates. 

Unemployment benefits work fast. The government writes a check that goes directly into the economy. Public works projects take longer to get implemented. The plans must be updated, workers hired, and supplies delivered. 

Funding education is also an effective unemployment solution. One billion dollars spent hiring teachers adds $1.3 billion to the economy. Better-educated people can get higher-paying jobs. They can buy more things with the higher wages they earn. Each $1 billion spent can create 17,687 jobs. That's much better than defense spending . It only creates 8,555 jobs for the same investment. Defense is more capital-intensive. Modern defense relies more on drones, F-35s, and aircraft carriers than soldiers.

The most popular fiscal stimulus is across-the-board  income tax cuts . That's not the most cost-effective, according to the UMass/Amherst study. One billion dollars in cuts creates 10,779 jobs. Workers only spend half the money, which in this case is only $505 million. 

As a result, reductions in the tax rate are not the most effective way to help job growth. Most people don't realize they are getting a break until tax time. The tax cut means they pay less in taxes, but they still have to pay. Psychologically, they are less likely to spend anything extra. It just doesn't feel like a bonus. As a result, people are more liable to save anything they get or use it to pay down other debts.  

A more effective tax cut is in businesses' payroll taxes. The best place to give business tax relief is with small businesses. From 2000 to 2018, they produced 65% of all net new jobs created.  

The downside of fiscal policy is that it could add to the budget deficit. That creates more government debt. As debt approaches 100% of the economy's total output, it slows economic growth. Investors could lose the desire for that government's debt. This makes interest rates rise, increasing the cost of borrowing.

Advocates of  supply-side economics  say that, over time, tax cuts boost the economy enough to replace any lost tax revenue, but according to the Laffer Curve, that's only true if taxes are over a certain threshold to start with.  

The government uses two policies to tackle unemployment: monetary and fiscal.

Expansionary monetary policy increases the money supply and:

  • Has more immediate effects
  • Stimulates demand, production; and ultimately, employment
  • Is managed by the Federal Reserve or a central bank

Expansionary fiscal policies include government spending and tax cuts. These:

  • Take more time to have an impact
  • Have a greater impact on consumerism, so they are more effective as economic stimuli
  • Increase government debt and add to the budget deficit

The most cost-effective solutions are fiscal. Building mass transit, granting unemployment benefits, funding the educational sector, and payroll tax cuts allow consumers to gain more income which they spend to spur demand.  

How does a high unemployment rate affect the economy?

High unemployment can have detrimental effects throughout the economy. When fewer workers are working, it reduces production and GDP. Unemployed workers drain resources from state and federal governments while tax revenues are simultaneously cut. Persistent unemployment can have serious societal effects, as well. A study conducted during the Great Recession showed how extended unemployment can hurt workers' long-term earning potential, which can affect the economy for years to come.

What is the natural rate of unemployment?

The natural rate of employment is an estimate of how low unemployment would go when inflation is stable and economic production is steady. It's difficult to estimate with precision, but economists suggest that it usually hovers around 4.5% to 5.5%. In other words, when the economy is stable and growing neither too quickly nor too slowly, natural unemployment will usually fall somewhere within that range.

Stanford University. " Why Has the Unemployment Rate Fared Better Than GDP Growth? "

U.S. Bureau of Labor Statistics. " Labor Force Statistics From the Current Population Survey ."

Board of Governors of the Federal Reserve. " How Does Monetary Policy Influence Inflation and Employment? "

International Monetary Fund. " Fiscal Policy: Giving and Taking Away ."

National Archives. " Estimates of Job Creation From the American Recovery and Reinvestment Act of 2009 ."

Carnegie Mellon University. " The American Recovery and Reinvestment Act: Solely a Government Jobs Program? "

University of Massachusetts Amherst. " The U.S. Employment Effects of Military and Domestic Spending Priorities ," Page 6.

Center for American Progress. " Unemployment Insurance Dollars Create Millions of Jobs ."

Economy.com. " Washington Throws the Economy a Rope ."

Congressional Budget Office. " Economic Stimulus: Evaluating Proposed Changes in Tax Policy ," Page 5.

Congressional Budget Office. " The Fiscal Multiplier and Economic Policy Analysis in the United States ," Page 5.

U.S. Small Business Administration. " Frequently Asked Questions ," Page 1.

Bank for International Settlements. " The Real Effects of Debt ," Page 1.

University of California, Berkeley. " How Far Are We From the Slippery Slope? The Laffer Curve Revisited ."

Economic Policy Institute. " Sustained, High Joblessness Causes Lasting Damage to Wages, Benefits, Income, and Wealth ."

Federal Reserve Bank of San Francisco. " The Natural Rate of Unemployment over the Past 100 Years ."

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We can end America’s unemployment nightmare

The problem with our social safety net is clear. The solution is, too. 

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Part of The Great Rebuild Issue of The Highlight , our home for ambitious stories that explain our world.

Erin Suggs applied for unemployment in March as soon as the California salon she works at shut down. She figured her case would be pretty straightforward — she works on commission, meaning she’s counted as a regular employee, not self-employed.

But it took the 50-year-old mother of two more than two months to get her benefits, during which time she estimates she and her husband called California’s Employment Development Department, which administers the state’s unemployment system, upward of 3,000 times. It turned out that in filling out the forms, she checked one box wrong. “It just put me in pending hell for 10 weeks,” she says. “There was no way of fixing it.”

Her experience is hardly unique. In California alone, more than 6 million people, or one-third of the state’s workers , have filed for unemployment benefits, and hundreds of thousands of them have been stuck in a weeks- or even months-long backlog. Meanwhile, nearly 1 million people across the United States continue to file new unemployment claims each week, and some 29 million people are receiving some sort of unemployment assistance. And for many of them, navigating the system has been a nightmare .

The coronavirus has brought home the many shortcomings of the American unemployment insurance system and revealed it to be fundamentally — and often intentionally — broken , chipped away over time to ensure that the jobless don’t use it too much, lest anyone get used to it. Unemployment insurance operates under a hybrid state-federal setup that has resulted in an awkward push-and-pull between the federal government, state governments, and employers. No one quite wants to take full responsibility of it, but everyone wants a say.

However, the federal government’s response to the pandemic — namely, the expansions to unemployment put in place under the CARES Act — has demonstrated what a more robust and generous program might be able to do .

“People are right to be upset about the delays and the backlogs and the problems, but I think the promise of unemployment insurance is definitely here, which is, you can stabilize incomes through a very harsh business cycle,” said Mike Konczal, the director of progressive thought at the Roosevelt Institute. “It’s quite remarkable the amount of money that has been able to get out to workers to replace their wages.”

Still, the system leaves those workers without much of a voice. Every week, when Suggs certifies that she continues to be unemployed, she says a little prayer. “One mistake and I’m going to get thrown back into that,” she says.

It’s been more than 80 years since unemployment insurance was codified in federal law, and it’s worth asking how it became the system we know today, and how it could work better. In order to help employed Americans, we have to help unemployed Americans, too. It’s good for the economy.

A reimagined unemployment system would treat the jobless like customers, not criminals, while helping them stay afloat as they find their next gig. It would be easier to navigate, pay people more consistently, regardless of where they live, and take into account the wage stagnation of decades past. It would be easier to ramp up in times of crisis and better serve the modern workforce — groups such as gig workers, short-term employees, and people looking for jobs.

As Darrick Hamilton, the executive director of the Kirwan Institute for the Study of Race and Ethnicity at Ohio State University, puts it: “The nature of work has changed in America, and so should unemployment insurance.”

Suggs filed for unemployment the first day she didn’t work. In theory, her case is a simple one: She’s held the same full-time job for a long time and will return to work as soon as she gets the go-ahead. She is the type of person the system is supposed to work for in a progressive state where the social safety net is supposed to be pretty robust.

But unemployment insurance has never worked super smoothly in the US. The first state in the country to put an unemployment insurance program in place was Wisconsin in 1932, and the federal program became law under the Social Security Act of 1935 . It was set up as a mixed federal-state endeavor for reasons that wouldn’t surprise the average political observer today: There was disagreement over what level of government should be in charge of running the program, and proponents of unemployment insurance were nervous it might be undone by the Supreme Court, which had struck down multiple pieces of legislation. The hope was that this model would give it a better chance with the court, and even if the federal component were struck down, the state components could live on.

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“It was designed to have this very broken and fractured structure,” Konczal said.

The point of unemployment insurance is to replace income for people who have lost their jobs and keep them attached to the labor market. It is also a measure to keep the economy going in times of economic downturn and support consumer spending; an unemployed worker being unable to pay their rent isn’t just bad for the tenant, it’s bad for the landlord.

In the US, unemployment insurance is meant to work by replacing about half of a worker’s wages (up to a certain cap) for about 26 weeks. It is intended for those who involuntarily lost their jobs, meaning they were laid off or fired, and not people who quit. Those who quit their jobs can wind up collecting benefits, namely if they can explain that they did so for good cause, such as experiencing sexual harassment, but it often winds up being a battle adjudicated by the state.

The program is financed through state and federal payroll taxes that are supposed to fund administrative systems and the benefits themselves.

Many states have kept those taxes pretty low, resulting in a system that is chronically underfunded. And during periods of stress, the impact of that underfunding really shows. State unemployment trusts can run out of money fast — during the Great Recession, about three dozen states had to borrow federal money to keep payments going. Years of disinvestment in technology and administration led to problems like those now affecting Suggs and millions of unemployed workers across the country. You make one mistake, or your case has one little quirk, and you’re sucked into a bureaucratic black box disaster with no clear end in sight. And then, once the economy gets better, everyone moves on and forgets, and the political impetus to fix these problems fades.

“It’s almost impossible to make repairs during the bad times, but that’s the only time anyone pays attention,” said Sara Flocks, policy coordinator with the California Labor Federation.

In 2010, the California state Assembly had a hearing to look into problems with the state’s unemployment technology and backlogs during the recession . “I’m shocked at how bad this situation has become,” then-Assembly member Charles Calderon said at the time .

A decade later, it’s California Assembly member David Chiu who is spearheading a charge to overhaul the still broken system. “This is a problem long coming,” he said. “The system broke down during the Great Recession, with many of the dysfunctional elements that we’re seeing today.”

“The administrative systems are pretty broken, or at least pretty frayed, or at least not up to this,” said University of California Berkeley economist Jesse Rothstein. “We haven’t invested in them over a long time.”

The federal government sets the bar for states to design their systems, but the bar is pretty low, and states are largely left to their own devices when it comes to how much they want to tax employers, how generous they want to be with benefits and for how long, and who gets deemed eligible for collecting benefits.

The fragmented state-federal system has resulted in an uneven and distorted unemployment insurance system. According to the Center on Budget and Policy Priorities , the average weekly benefits in the country were $333 as of April 2020, but that ranged from $101 in Oklahoma to $531 in Massachusetts. The length of unemployment varies significantly per state , as does the number of unemployed people who collect benefits. Pew Research Center estimates that just 29 percent of unemployed Americans received benefits in March, and in states like Florida, Arizona, and North Carolina, less than 10 percent did.

At the state level, employers have more control over the unemployment system as well, explained Wayne Vroman, a labor economist at the Urban Institute. Employers want low costs — as in taxes — and they don’t want employees claiming benefits they feel are undeserved. “The balance of power between labor and business has moved in the direction of business, so the programming increasingly reflects business concerns,” Vroman said.

Given the recent troubles with unemployment, there has been a lot of attention on the outdated technologies being used . But new technology does not always translate to a more effective system. Some states that have modernized their technology have done so with a focus on fraud and making them harsher on the unemployed, said Michele Evermore, a senior policy analyst at the National Employment Law Project (NELP). “Florida is technically a modernized system, but they changed the system with the absolute aim of making it harder for people to get benefits,” she said.

While experts acknowledge that fraud exists, they say there’s been too much attention on it, overshadowing concerns about getting money to people in need. “They’re focused on catching the bad guys rather than helping the good guys get through,” said Andrew Stettner, a senior fellow at the Century Foundation.

And because the system is so onerous and the benefits often so low, many people don’t even bother applying for unemployment, or they eventually stop trying.

When Suggs started running into problems with her unemployment claim, she went to Facebook to try to find answers and see what others in the same situation were doing. Eventually, she started her own group for people struggling to navigate the bureaucracy to talk to one another. “I wanted people to be able to post their frustrations and come and get support,” she said.

Members ask for advice, swap stories, and even share phone numbers they’ve used that have helped them finally get through. The EDD’s phone line for people who need help with a specific claim is only open from 8 am to noon, Monday through Friday.

The Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, the $2.2 trillion stimulus package signed into law by President Trump in March, was supposed to make life for the unemployed during the pandemic better. It tacked on an additional $600-a-week federal benefit through July 31, extended the amount of time people can collect benefits, and expanded the pool of workers who can apply for unemployment to independent contractors, gig workers, and others who are usually ineligible, such as artists and musicians.

But many people could not actually access the system. When Suggs finally got through to a real person at California’s unemployment office, the woman she spoke with told her she was lucky, because she actually knew what she was doing. The department had staffed up, but most of the new staff hadn’t received a ton of training. “They basically hired … people to just kind of answer the phones, hang up on people, and tell people they couldn’t help them,” Suggs says she was told.

“Not to be hyperbolic, but everywhere you look in our unemployment agency, there is a problem,” said Jennifer Kwart, a staffer for Assembly member Chiu.

A small error, such as an extra digit in a Social Security number, can put a claim in flux for weeks, and even with benefits being slow to go out, states’ unemployment trusts are already being tapped out. In May, California became the first state to borrow from the federal government to pay benefits during the current downturn. It took till 2018 to finish paying off what it owed the government in unemployment from the last recession.

solve unemployment problem

As one source familiar with California’s EDD put it, a lot of the issue comes down to the complexity of how federal funding is handled and the fact that no governor is eager to raise taxes to fix things, Democrat or Republican. It’s just not politically popular, especially when employers are powerful and there isn’t exactly a union of the unemployed.

“The power of our labor unions is pretty strong, but at the same time, it’s really hard when it comes to unemployment insurance to convince people when times are really good to focus in on it,” the source said. “But the problem is when you don’t focus on it when times are really good is that when stuff is tough, like it is now, it’s the most important department in the state.”

All of this adds up to real consequences in people’s everyday lives, consequences that are even more stressful in moments of crisis like now.

Still, Suggs considers herself lucky — her husband has a steady income, and her family had recently sold a home they inherited. “If it wasn’t for him working, I don’t know what we would have done. We probably would have ended up homeless,” she said.

Yvonne Garcia, a member of Suggs’s Facebook group, is also thankful for her family’s support as she tries to work through the unemployment system after being laid off from the poker room she works for in March. She’s experienced the consequences of the focus on fraud directly. When she was unemployed in 2018, Garcia was paid an extra $172 in benefits she wasn’t supposed to receive. It happened during three days of training for a new job that she didn’t realize she was supposed to report. “I was just so embarrassed,” she said.

Garcia has paid back the money she owed, but even so, she was penalized five weeks of benefits this time around for the mishap after being furloughed. She successfully appealed her case and is now collecting benefits — just $167 a week. It’s enough for her to get by, for now. Garcia waited to request forbearance on her mortgage until August, when the extra $600 in federal benefits ended, to buy herself time. She hopes the poker room will reopen in January and in the meantime plans to pick up a part-time job at Costco.

“When somebody says you’re making more than what you make at work, I say, no I’m not,” she said. “I’d much rather be at work.”

Personal incomes did rise about 10 percent in April, and poverty didn’t increase — it actually might have gone down . According to one recent paper from the IZA Institute of Labor Economics, between March and July 2020, expanded unemployment insurance under the CARES Act offset earnings inequality the country would have otherwise seen, particularly for low-income Americans, and it helped reduce the decline in aggregate demand in the broader economy by putting money in people’s pockets. And despite concerns that generous benefits would discourage people from working during the pandemic (which, one could argue, is at least partially the point), research for Yale found that didn’t happen.

“The $600 boost made a huge difference to families that are unemployed to no fault of their own,” said Liz Watson, executive director of the progressive nonprofit the Congressional Progressive Caucus Center. “For too long, the benefit has been set at a level that is completely unlivable.”

One estimate recently released by the group and put together by Center for American Progress researchers Justin Schweitzer and Lily Roberts made the case that typical single-parent households fall thousands of dollars short when trying to meet basic needs on typical unemployment insurance.

“The $600 got us into a different conversation that acknowledges that wages are really, really low to begin with, and anything that’s a proportional replacement of those wages will just reinforce how disparate wages are,” Roberts said.

“We have an opportunity to now create permanent structural change to this program,” said Rebecca Dixon, executive director of National Employment Law Project, at a recent panel hosted by Vox . “We often say that something is not working as designed, and I would just encourage us to realize it is working as designed, and we need to change that design.”

So how do we change it for the better? So that it works in the good times and the bad?

Many of the experts I spoke with said that if the US got a real do-over, it would be much better to go with a federal system — which the vast majority of countries that have unemployment benefits use — instead of a hybrid federal-state one. It could run much like the Social Security benefits program and would be a way to make the program more uniform in terms of benefit amounts and time frames across states.

“Having a 50-state system, and having them really underfunded by their states and by the federal government, hasn’t left us in a good position,” Stettner, from the Century Foundation, said.

While that might be the ideal situation (which would also ideally entail the federal government adequately funding the program’s administration and the benefits), it’s not super likely. Employers and state governments would likely oppose it. So then it’s time to start looking for overhauls to make where the states still get a role.

“If you take the existing state systems as here and impossible to get rid of, you can still have a minimum standard for benefits payment,” Vroman said. It’s a way to make sure that if you lose your job in Mississippi, you’re not in a much worse spot than if you lost your job in Massachusetts. “That could be legislated, and that’s a less radical change because it still keeps the states as the first line of administering the program.”

solve unemployment problem

There are multiple proposals, both big and small, for how to improve and modernize unemployment insurance in the US. In 2016, the Obama administration laid out a series of proposals on that front, including expanding access to part-time, temporary, and low-income workers. More recently, Sen. Michael Bennet (D-CO) put out a series of proposals for the unemployment system , including automatic stabilizers that would ramp up the program when the economy falters and unemployment rises. Instead of waiting on Congress to decide to help out when unemployment is at 10 percent, as it is now, extra benefits would kick in automatically.

There is a lot of consensus among experts and activists around the issue. After decades of wage stagnation, the government should increase the amount of benefits paid in proportion to someone’s salary to make sure it actually helps, especially for people on the low end of the income spectrum, including people of color and women, who often aren’t even in a position to save in normal times. It should invest in administrative and technological infrastructures so that they are designed for moments of stress.

It should expand the pool of workers eligible for unemployment to less typical employees, including those who change jobs a lot and especially those lowest earners who are not covered. And it should provide job-seekers some sort of benefits as well. That way, recent graduates or people reentering the workforce aren’t scrambling. Some of these workers have been added into the mix under the CARES Act, such as independent contractors. Others, such as those without a long work history and recent graduates, are left out.

The government should also examine and encourage innovative programs, such as work sharing , through which employers temporarily reduce work hours for their employees and that reduced income is supplemented with unemployment insurance.

“It’s not perfect, but for a lot of employers, it means the difference between layoffs and no layoffs, and for workers, it means keeping not only their jobs but also their health care,” Flocks, with the California Labor Federation, said.

It’s the type of idea that could perhaps help someone like Suggs and her employer, because even when open, business isn’t back to normal. When the salon reopened for a while in the spring, things were pretty slow. People weren’t rushing to get their hair done. “I was having cancellations all over the place,” Suggs said.

To be sure, addressing the real shortfalls of unemployment is easier said than done, and there are real philosophical questions about how the program should work.

What amount of benefit is the right amount is not a simple issue. In the current crisis, arguments that benefits are too generous are unwarranted — when you’ve got four or five job-seekers for every job, the government being too nice to them isn’t really the problem, let alone in a pandemic. But in normal times, economists and experts don’t agree on how much is the right amount of income to replace.

“The best kind of insurance from the perspective of a worker would make them whole,” said Michael Stepner, an economist and postdoctoral fellow at the Harvard research project Opportunity Insights. “But the trade-off there is if you make people completely whole, there’s a concern that they just won’t bother to search for a job.”

Vroman said there is evidence of disincentive effects , and some people are more prone to follow those effects than others. Jeffrey Miron, a libertarian economist at Harvard, said part of the issue is making sure people don’t wait on unemployment insurance forever while also waiting for a job that’s not coming back. “There is an inevitable trade-off between trying to protect those people who are unemployed who generally face bad opportunities versus creating a perverse incentive for people to stay unemployed,” he said.

But given how scarce benefits are and how hard the system is to navigate, the real disincentive for people to apply for unemployment insurance at all is coming from state unemployment offices and poor systems no one’s entirely in charge of.

“The idea at least should be to give everyone, not just higher earners, the ability to feel secure after a layoff knowing they aren’t going to get evicted or have to skip meals while they take the proper time needed to look for a new job,” Schweitzer, the CAP researcher, said in an email, pointing out that even when things are normal, finding a job isn’t always easy. “The more desperate workers are to find a job fast, the more leverage employers have, especially in low-wage industries, to underpay them.”

That is especially harmful to workers of color and, in particular, Black workers, who typically have higher rates of unemployment than white workers and who have been hit especially hard during the pandemic . They also overall have less savings to fall back on and less wealth .

There are, of course, those who argue that the social safety net, whether unemployment insurance or otherwise, is a waste of money for the federal government and that even in the current crisis, such generous benefits are unwarranted . The US Chamber of Commerce, a private organization that represents businesses, has lobbied against expanding the $600 in CARES Act benefits, arguing that it is causing “significant distortions in the labor market and hurting the economic recovery.” Another read: It’s drawing attention to how little some companies pay their workers.

While Suggs says her situation is under control for now, she still sees people in the Facebook group every day talking about their troubles. “There are people out there that are really, really struggling,” she said, and even she remains frustrated. The government has made it “as difficult as possible for people to work or not work.”

“If you want everyone to stay home, why don’t you make it easier and fix the system somehow? We’re the tech state, and we couldn’t do it,” Suggs said. “It was a nightmare. It is a nightmare.”

Emily Stewart is a business and politics reporter for Vox , covering the ways people are affected by the forces of capitalism and money.

This story is part of The Great Rebuild , a project made possible thanks to support from Omidyar Network , a social impact venture that works to reimagine critical systems and the ideas that govern them, and to build more inclusive and equitable societies. All Great Rebuild coverage is editorially independent and produced by our journalists.

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How to Cope with the Issues on Poverty and Unemployment

Last Updated: December 18, 2023 References

This article was co-authored by Alex Kwan and by wikiHow staff writer, Kira Jan . Alex Kwan is a Certified Public Accountant (CPA) and the CEO of Flex Tax and Consulting Group in the San Francisco Bay Area. He has also served as a Vice President for one of the top five Private Equity Firms. With over a decade of experience practicing public accounting, he specializes in client-centered accounting and consulting, R&D tax services, and the small business sector. There are 32 references cited in this article, which can be found at the bottom of the page. This article has been viewed 64,257 times.

Unemployment and poverty are linked, since a lack of income makes it hard for people to make ends meet. What can communities and governments do to reduce poverty and unemployment? Whether you’re a student or an activist, we’ve outlined the top strategies and policies recommended by experts to help you understand these complex economic issues. The solutions fall into three major buckets–helping people become more employable, creating more jobs, and supporting governmental programs to stop the cycle of poverty.

Promote education for everyone.

World poverty could be reduced by 50% if all adults received secondary education.

  • Donate to scholarship funds. For instance, you can donate to the Children’s Scholarship Fund to support K-8 education in the U.S. at https://scholarshipfund.org/
  • Support afterschool tutoring programs and mentorship programs that connect students with caring adults. [5] X Trustworthy Source PubMed Central Journal archive from the U.S. National Institutes of Health Go to source Visit https://secure.givelively.org/donate/afterschool-alliance to donate.
  • Give money to funds that pay for transport to and from school. Search online to find local and state funds that support kids near you.

Alex Kwan

Make job training more accessible.

Teaching people job skills increases their ability to get hired for higher-paying jobs.

  • Governments can provide federally-funded or state-funded job training programs. These are often run by state workforce development commissions.

Create microfinance programs.

Microfinance programs give small loans to encourage entrepreneurship.

  • New studies on the impacts of microfinance question whether it’s a solution that truly benefits the poor. While it may help empower female entrepreneurs living in poverty, microfinance can potentially worsen overall debt. [13] X Research source

Increase jobs in labor-intensive industries.

Automation and technology make production more efficient, but they reduce jobs.

  • Economists find that employing more people (rather than using machines) doesn’t result in the huge drop in productivity you might imagine. [15] X Research source

solve unemployment problem

To address poverty and unemployment, education, job training, microfinance, and counseling must combine with policy transformation. Safety nets must cover all while infrastructure and hiring incentives create good jobs. Healthcare access and affordability need improving too. With coordination across sectors, cycles trapping people in poverty can end.

Invest in infrastructure.

Building roads and other civic projects provides jobs.

  • Beyond just providing jobs, infrastructure development makes the economy more connected. When there’s more infrastructure, it’s easier for people to travel around in order to buy or sell goods and services.
  • For instance, to help alleviate poverty and unemployment in the rural Philippines, better access to roads and the internet could help farmers sell their goods. [17] X Research source

Reduce barriers to unemployment insurance.

In the United States, states can consider changing requirements for unemployment insurance.

  • Some states specify that only people with a certain work history length can receive unemployment benefits, and adjusting work history requirements could more people eligible. [20] X Research source
  • States also could consider eliminating waiting periods for people to receive their unemployment insurance benefits. Currently, 42 states require people to wait 1 week to receive benefits. [21] X Research source
  • To receive unemployment benefits, you have to prove you lost your job through no fault of your own. States might consider changing what qualifies as an “acceptable” cause of unemployment. [22] X Research source

Create affordable housing.

Affordable housing keeps rent costs down for low-income people.

  • For example, one region might say you have to be 50% below the median income for an area while another region might say you qualify if your income is 80% below the median income.

Ensure access to clean water and sanitation.

Billions of people worldwide lack access to clean water.

  • Communities can improve access to water by helping people create water safety plans for keeping water contaminant-free and building water filtration systems and wells. [27] X Trustworthy Source World Health Organization Health information and news provided by the World Health Organization Go to source
  • Visit The Water Project ( https://thewaterproject.org/ ) or Charity Water ( https://www.charitywater.org/ ) to donate and support bringing clean water to those in need.

Improve access to healthcare.

People living in poverty are at greater risk for health conditions.

  • On the provider level, doctors have to understand that patients in poverty might face greater obstacles to getting treatment.
  • Patients in poverty may find medications too expensive, may lack transportation to get to the doctor’s office, and may not have a work schedule that lets them easily see a doctor. [29] X Trustworthy Source American Academy of Family Physicians Organization devoted to improving the health of patients, families, and communities Go to source

Offer counseling services to support families in poverty.

Poverty and mental health issues are often linked.

  • Connect families in need to a Federally Qualified Health Center if they can’t afford to pay for psychological services. [32] X Research source

Increase access to financial services.

Low wages and a lack of savings make it hard for some people to get credit.

  • For instance, creating free digital banking services can make it easy for people to access accounts. [34] X Research source
  • In the U.S., predatory financial services, like high-cost mortgage firms, have historically targeted Black and Latino communities. Today, these communities are 30-86% more likely to be financially “underwater” as a result of high-cost mortgages. [35] X Research source

Support single-mother households.

Poverty rates for single-mother households are higher than for other groups.

  • Support single mothers in your community by donating kids’ clothes and toys and contributing staples like canned goods to your local food bank. [37] X Research source
  • If you know a single mother, offer to babysit, or carpool to school if you have kids of your own.
  • In 2013, federal benefits reduced the poverty rate among single mothers by half.

Improve fairness in criminal justice systems.

Jail time makes it more difficult for people to get jobs.

  • Incarceration negatively impacts communities of color more than white communities.
  • Visit The Sentencing Project ( https://www.sentencingproject.org/actions/ ) to take action and connect with state and local partners working towards legal reform.

Expert Q&A

Alex Kwan

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  • ↑ https://en.unesco.org/news/world-poverty-could-be-cut-half-if-all-adults-completed-secondary-education
  • ↑ https://www.oecdbetterlifeindex.org/topics/education/
  • ↑ https://educateachild.org/explore/barriers-to-education
  • ↑ https://www.ncbi.nlm.nih.gov/pmc/articles/PMC2528798/
  • ↑ Alex Kwan. Certified Public Accountant. Expert Interview. 23 April 2021.
  • ↑ https://prospect.org/special-report/education-cure-poverty/
  • ↑ https://www.americanprogress.org/issues/economy/reports/2018/02/22/447115/better-training-better-jobs/
  • ↑ https://www.un.org/africarenewal/magazine/august-2015/microfinance-good-poor
  • ↑ https://journals.sagepub.com/doi/full/10.1177/0018726716640865
  • ↑ https://www.un.org/development/desa/socialperspectiveondevelopment/issues/employment-and-decent-work.html
  • ↑ https://ideas.repec.org/a/sls/ipmsls/v28y20154.html
  • ↑ https://www.brookings.edu/research/expanding-opportunity-through-infrastructure-jobs/
  • ↑ https://www.imf.org/en/News/Articles/2020/02/06/na020620the-philippines-a-good-time-to-expand-the-infrastructure-push
  • ↑ https://www.cbpp.org/research/introduction-to-unemployment-insurance
  • ↑ https://www.urban.org/research/publication/how-does-unemployment-affect-family-arrangements-children
  • ↑ https://www.cbpp.org/research/federal-budget/cares-act-measures-strengthening-unemployment-insurance-should-continue
  • ↑ https://www.booker.senate.gov/news/press/coronavirus-booker-introduces-bill-to-get-unemployment-assistance-immediately-to-laid-off-workers
  • ↑ https://www.wpr.org/evers-aims-increase-unemployment-benefits-lower-barriers
  • ↑ https://archives.hud.gov/local/nv/goodstories/2006-04-06glos.cfm
  • ↑ https://www.hud.gov/topics/rental_assistance/phprog
  • ↑ https://news.un.org/en/story/2021/03/1087682
  • ↑ https://thewaterproject.org/why-water/poverty
  • ↑ https://www.who.int/westernpacific/activities/improving-access-to-safe-water-sanitation-and-hygiene
  • ↑ https://www.worldbank.org/en/topic/health/brief/poverty-health
  • ↑ https://www.aafp.org/about/policies/all/poverty-health.html
  • ↑ https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7525587/
  • ↑ https://www.hrsa.gov/opa/eligibility-and-registration/health-centers/fqhc/index.html
  • ↑ https://www.policylink.org/sites/default/files/BreakingTheCycle_0.pdf
  • ↑ https://www.worldbank.org/en/topic/financialinclusion/overview#2
  • ↑ https://www.brookings.edu/testimonies/renewing-communities-and-providing-opportunities-through-innovative-solutions-to-poverty/
  • ↑ https://parents-together.org/11-realistic-ways-to-support-single-parents-during-the-covid-19-crisis/
  • ↑ https://www.americanactionforum.org/research/incarceration-and-poverty-in-the-united-states/

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  • How to follow the Jobs Reset Summit 2021
  • Chief Economists Outlook
  • What will a post-pandemic economy look like? Here's what chief economists expect

“While there are expectations that a robust economic recovery will occur in the second half of 2021 with the roll-out of vaccination against COVID-19, the global economy is still facing high levels of uncertainty and there is a risk that the recovery will be uneven,” according to an International Labour Organization (ILO) analysis .

In 2020, around 255 million full-time jobs were lost worldwide – “approximately four times greater than during the global financial crisis in 2009,” says the analysis.

solve unemployment problem

And the losses will keep coming. In the “optimistic” scenario, we could see a loss of 36 million full-time jobs in 2021 – up to as many as 90-130 million in the worst case.

Furthermore, continued job losses will not be evenly spread. We can expect “massive” losses in sectors like hospitality, arts and culture, retail and construction, hitting women, young people and low- and medium-skilled workers (often the lowest-paid workers) the hardest. At the same time, we could see job growth in high-skilled sectors and occupations such as information/communication and financial/insurance activities – deepening inequality.

solve unemployment problem

While none of this is surprising, recovery is complicated by a perhaps unanticipated paradox: “millions remain unemployed after losing work in the pandemic, but businesses say they can’t find enough people to hire,” the Financial Times explains . This is especially the case in some of the world’s wealthiest nations – and in the very same sectors facing the biggest losses over the last year and a half.

“There is a growing chorus of complaints in America about a shortage of labour, even as unemployment remains high,” continues the Financial Times report. Delta Air Lines canceled 100 flights in April due to a crew shortage . A McDonald’s in Florida is paying potential workers $50 to simply show up for an interview . Similarly, in the UK, restaurants are offering vouchers to customers and bonuses to employees who refer successful applicants , while Queensland, Australia, is offering cash and subsidized travel to workers for the surfing destination’s tourism sector.

“There are three potential explanations for the puzzling shortages: over-generous benefits; fearful workers; and a reallocation of labour between industries,” explains The Economist . In the US, for example, unemployment benefits in some states are more than twice the minimum wage, notes FT – necessary during pandemic-induced lockdowns, but now thwarting businesses on the verge of recovery who need these workers to return.

So, how do we unlock this “labour market paradox,” ensuring a robust, inclusive recovery that addresses the needs of both businesses and workers?

Ahead of the Jobs Reset Summit 2021, the World Economic Forum asked seven chief economists for their views – here’s what they said.

Capture data on 'structural shifts'

Paul Donovan , Chief Economist , UBS Global Wealth Management

solve unemployment problem

The weird economic cycle of the global pandemic has crashed into the structural upheaval of the Fourth Industrial Revolution. Global labour markets are right in the middle.

Working from home and online retail created mismatches. The urban barista is out of work, but cannot commute for a job in a village pub. Childcare issues and outdated gender stereotypes have undermined female participation in the workforce, although more flexible working arrangements may improve that in the future. Reduced barriers to entry in a more virtual world have combined with more free time to encourage entrepreneurism – every TikToker seems to sell product via a “merch link.” People may return to the historical norm of having a portfolio of incomes rather than a single job.

Unfortunately, labour market data remains in the mentality of a century ago; these structural shifts tend to be glimpsed in the shadows rather than captured in official data.

‘Automation may solve this labour supply problem’

Karen Harris , Managing Director, Macro Trends Group, Bain & Company

The labour shortages currently plaguing the US economy are likely to resolve as the recovery continues. However, a more labour-scarce environment could emerge over the coming decade due to demographics. These labour supply issues could be especially acute in countries like China and Germany, where the total labour force is already shrinking.

Higher levels of automation may ultimately solve this labour supply problem. Recent advancements in automation have broad applications within the service sector, and the COVID-19 pandemic prompted many companies to accelerate their adoption of such technologies. However, labour markets may be unusually tight during the investment phase of the transition to higher levels of automation, as new investment demand is typically the forerunner of greater productive capacity.

In the long term, labour automation will eliminate or redefine many jobs in advanced economies, and it will create opportunities for reshoring that could displace workers in emerging markets.

solve unemployment problem

Policy-makers must ensure labour shortages don’t ‘hamper the recovery’

Janet Henry , Global Chief Economist, HSBC

The labour market is one of the big unknowns about the economic recovery. In the US, there are 8 million fewer workers than pre-pandemic, while in the UK, 10% of the workforce is still on furlough. And yet in both countries, and elsewhere, there are widespread reports of labour shortages. A lack of qualified workers is not uncommon for some high-skilled jobs, but currently, it seems, other factors are cutting the supply of workers in many sectors, such as home-schooling, caring responsibilities, health fears, generous government income support and less immigration.

Later this year, as vaccination numbers rise and income-support schemes come to an end, these shortages should abate, helped perhaps by some relaxation of visa restrictions for foreign workers. But in the meantime, labour shortages could hamper the recovery and/or mean that higher wages help keep inflation sticky. They also threaten to slow the rise in the employment-to-population ratio – an important gauge of the Fed’s goal of maximum employment.

solve unemployment problem

‘The hunt for talent is fierce’

Karin Kimbrough, Chief Economist, LinkedIn

Since the beginning of the year, we’ve seen a rapid increase in jobs posted on LinkedIn by companies looking to hire. While the increase extends to all industries, there has been a notable rise in the number of open roles in the IT, Finance, Recreation and Travel sectors.

At the same time, job-seeking activity has grown more slowly than job posting. There are several potential explanations for this, including the lagged pace of vaccinations, continuing partial school and eldercare closures, and job seekers focused on finding the best job match – not the first match – with potential employers.

We think the current labour bottleneck is likely temporary and will resolve with time. Because the anecdotal shortage spans different groups of talent, we hear demand for advanced digital skills, as well as demand for workers in the service industry, like hospitality.

While it is an open question as to what the post-pandemic jobs market will look like, what’s not in doubt is that the hunt for talent is fierce.

Have you read?

  • Your next job move could be easier than you think

Policy-makers must ‘ensure an inclusive recovery,’ especially for migrant workers

Andrea Montanino , Chief Economist, Cassa Depositi e Prestiti (CDP) and Chairman, Fondo Italiano d’Investimento

Despite in-work protection systems, unemployment rose in every country during 2020. However, not all workers were equal in such a context. Some categories of workers suffered more, and many will likely require more time to find an appropriate job again during the recovery.

Among those are migrant workers: men and women who were born in one country but work in another one. Take, for example, two of the major advanced economies in the world, the United States and Germany. While unemployment for native workers increased between 2019 and 2020 by 100.8% in the US and 15.9% in Germany, it increased respectively by 182% and 28.7% for foreign-born ones (almost double), according to the ILO. Does it matter? I believe so, because it might exacerbate tensions among groups, especially in advanced economies. Thus, policy-makers must create policies to ensure an inclusive recovery.

  • The Future of Jobs Report 2020

'Reactivating female employment is fundamental'

Eric Parrado, Chief Economist and General Manager, Inter-American Development Bank

Latin America and the Caribbean (LAC) is the region worst affected by the Covid-19 crisis. 2020 saw LAC suffering its biggest drop in GDP (-7%) in a single year on record, with almost 30% of the global Covid-19 crisis despite its population representing only 8% of the world population. Labour markets were severely affected by both external shocks and lockdowns. Almost 15 million jobs were lost, and again women have carried an additional burden.

The asymmetric impact on female employment is manifesting in several countries in LAC. Women have lost more jobs than men and the recovery of their jobs has been considerably slower. Reactivating female employment is fundamental for an agile economic recovery, as laid out in the IDB’s Vision 2025 strategy to reverse the impacts of the pandemic. In this context, countries should focus on three areas: supporting companies and promoting female entrepreneurship; developing new skills; and promoting regulations that allow us to improve the functioning of our labour markets. The goal is to have more productive, resilient and inclusive labour markets that are adapted to the needs of inclusive societies.

‘Innovation is the key to unlocking this labour market paradox’

Dr. Nela Richardson, Chief Economist, ADP

solve unemployment problem

While the global economic recovery is underway, the labour market recovery will likely be more protracted and uneven. In the U.S. the labour market paradox is readily seen. Eight million U.S. workers are still sidelined by the pandemic. At the same time, companies in some industries are struggling to find workers.

Innovation is the key to unlocking this labour market paradox introduced by the pandemic. The global economy’s rapid shifts in the past year also triggered structural changes, with both the demand and the supply of labour reorienting towards work that required less social contact. Even service providers like restaurants and retailers were able to innovate and adopt new remote technologies like online ordering, app-based delivery and contactless payment. Over time, the digitization of key business functions can foster a new era of job growth – one less limited by physical proximity and aided and accelerated by an increasingly tech enabled workforce and customer base.

What is the World Economic Forum’s Jobs Reset Summit?

The World Economic Forum’s Jobs Reset Summit brings together leaders from business, government, civil society, media and the broader public to shape a new agenda for growth, jobs, skills and equity.

The two-day virtual event, being held on 1-2 June 2021, will address the most critical areas of debate, articulate pathways for action, and mobilize the most influential leaders and organizations to work together to accelerate progress.

The Summit will develop new frameworks, shape innovative solutions and accelerate action on four thematic pillars: Economic Growth, Revival and Transformation; Work, Wages and Job Creation; Education, Skills and Lifelong Learning; and Equity, Inclusion and Social Justice.

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A Crisis of Long-Term Unemployment Is Looming in the U.S.

  • Ofer Sharone

solve unemployment problem

How biases trap qualified job seekers in a cycle of rejection — and how to help them break free.

The stigma of long-term unemployment can be profound and long-lasting. As the United States eases out of the Covid-19 pandemic, it needs better approaches to LTU compared to the Great Recession. But research shows that stubborn biases among hiring managers can make the lived experiences of jobseekers distressing, leading to a vicious cycle of diminished emotional well-being that can make it all but impossible to land a role. Instead of sticking with the standard ways of helping the LTU, however, a pilot program that uses a wider, sociologically-oriented lens can help jobseekers understand that their inability to land a gig isn’t their fault. This can help people go easier on themselves which, ultimately, can make it more likely that they’ll find a new position.

Covid-19 has ravaged employment in the United States, from temporary furloughs to outright layoffs. Currently, over 4 million Americans have been out of work for six months or more , including an estimated 1.5 million workers in white-collar occupations, according to my calculations. Though the overall unemployment rate is down from its peak last spring, the percent of the unemployed who are long-term unemployed (LTU) keeps increasing and is currently at over 40%, a level of LTU comparable to the Great Recession but otherwise unseen in the U.S. in over 60 years.

solve unemployment problem

  • Ofer Sharone is an expert on long-term unemployment and the author of the book Flawed System/Flawed Self: Job Searching and Unemployment Experiences (University of Chicago Press). Sharone received his PhD in sociology from the University of California Berkeley, his JD from Harvard Law School, and is currently an associate professor of sociology at the University of Massachusetts Amherst.

Partner Center

Unemployment during the pandemic: How to avoid going for broke

Key takeaways.

  • Without significant policy changes, employers will be hit with hefty tax increases to pay for mounting unemployment insurance (UI) claims.
  • Thinning tax bases make financing UI more challenging.
  • Having state UI trust funds in the red may make it much harder for job markets to recover.

Since the onset of the COVID-19 pandemic in late February, tens of millions of Americans have lost their jobs. Anxiety among many employers and consumers is still high — suggesting little hope of a rapid recovery.

This leaves state and local governments with gaping budget shortfalls amid falling income and sales tax revenues while demand for public services rises. A particularly fast-growing area of state expenditure is the payment of unemployment insurance (UI) benefits.

There has been extensive discussion among policymakers and the media regarding the trade-offs of more generous or longer-lasting UI benefits, such as the federal government’s provision of an additional $600 per week that expired July 31. But there has been very little talk about the tax hikes they will incur.

Many states have depleted their UI trust funds in the current crisis and have started to borrow from the federal government to pay their residents’ UI benefits. In the absence of additional policy changes, employers will be hit with significant UI tax increases over the next few years. And that will likely prevent some of the jobs that were lost from coming back.

In this policy brief, we explain how state unemployment insurance programs are financed and the threats to their solvency. We also discuss two reforms: one to relieve employers faced with crippling payroll tax increases in the coming years, and another to ensure that state UI trusts have enough money for future payouts.

Understanding unemployment insurance

Unemployment insurance is one of the largest social insurance programs in the United States, with each state running its own UI program to pay benefits to people laid off from their jobs. In most states, UI replaces about half of a worker’s earnings up to a weekly benefit maximum ($443 in the median state) for a maximum of 26 weeks (6 months).

While providing a needed cushion to workers, UI leaves policymakers with a difficult balancing act. As benefits become more generous, many recipients reduce their efforts to find and maintain jobs, reducing total income and burdening other workers (Johnston and Mas 2018). But if benefits become stingier, the cushion provides less support leaving some unemployed vulnerable to fall behind on their bills or lose their housing (Ganong and Noel 2019). [1]

Benefits are generally paid to people with relatively low saving rates, so the money that is distributed is quickly spent, providing short-term stimulus for consumer goods. This leads economists to refer to UI as an “automatic stabilizer.” Without the need for additional legislation, states  automatically  spend more money on unemployment benefits when economic conditions deteriorate, and spending naturally retracts as the economy recovers.

During the strong labor market leading up to the pandemic, just 220,000 workers filed new UI claims in the typical week. In late February, the unemployment rate was at 3.5 percent — a 60-year low — ­and about 1.7 million Americans were receiving UI benefits.

But two months later, the pandemic’s sudden and massive shock to the economy vaulted the U.S. unemployment rate to 14.7 percent — an 80-year-high. This April, rates varied substantially across states, from a high of 28.2 percent in Nevada to a low of 8.3 percent in Nebraska.

During the last week of March, 6.9 million Americans filed new claims for UI benefits. As demonstrated in Figure 1, this was  10 times higher  than the corresponding peak in new UI claims during the depths of the Great Recession more than a decade ago. By early May of this year, more than 25 million Americans were receiving UI payments and in every week since early March, new UI claims have exceeded the Great Recession peak of 660,000.

Figure 1: Weekly Initial Unemployment Insurance Claims (Thousands)

Figure 1: Weekly Initial Unemployment Insurance Claims (Thousands)

From March through the end of July, the federal CARES (Coronavirus Aid, Relief, and Economic Security) Act increased unemployment benefits for each recipient by $600 per week. That meant the average UI recipient was paid one-third  more  in unemployment than she earned while working (Ganong et al. 2020).

This raised concerns that workers had little incentive to return to work or find a new job, a condition necessary for labor market restructuring and recovery. [2]  This additional UI funding expired at the end of July after lawmakers were unable to agree on another round of federal spending. President Trump attempted to provide a $300-dollar weekly “top-up” by executive order (with states given the option to provide an additional $100). Whether and when that happens is unclear given that states have to apply for the funding. [3]

UI benefits are financed by a payroll tax on employers. Unlike other taxes, UI tax rates are “experience-rated,” which means that an employer’s future tax rate rises if its employees claim UI benefits, and its tax rate falls when the firm avoids layoffs. This gives employers a strong incentive to balance the demand for layoffs with the cost that they impose on the UI system.

One consequence of experience-rating UI taxes is that tax rates increase as the economy begins to recover from recession. This significantly raises the cost of hiring new workers or retaining old ones, likely weighing down recovery of the labor market.

As shown in Figure 2, the average UI tax rate increased by more than 50 percent from 2009 to 2012 as the recovery was haltingly underway.  This increase was especially high in middle-class industries — like construction and manufacturing — that were hit hardest during the Great Recession.  As this same figure shows, average tax rates were more than 2.5 times as high among employers in construction as among all employers in the years following the three most recent recessions.

Figure 2: Average UI Tax Rate on Total Wages (1990-2018)

Figure 2: Average UI Tax Rate on Total Wages (1990-2018)

Surviving firms have to cover the UI costs generated by the employers that went out of business — causing them to be doubly burdened. Given the much larger increase in UI claims during the current recession relative to previous ones and the likely greater rate of firm exit, the increase in UI taxes could be substantially higher over the next few years than in the years following the Great Recession. This will encourage outsourcing and automation, induce some firms to shut down, and impede employment.

Softening the blow to businesses

Unless employment recovers with impressive speed, each claim will draw an average of $7,000 in payments from state UI trust funds. Those payments will transform into an estimated $270 billion dollars in payroll tax increases on firms over the next few years, reducing the ability of firms to resume normal hiring and employment and further stalling a labor market comeback. [4]

In March and April of this year, 20 states suspended experience rating to shield their employers from an avalanche of additional UI taxes in the upcoming years. These states span the political spectrum as well as geography, including Arizona, Georgia, Idaho, Maine, Maryland, Ohio, Texas, and Washington. [5]

While this policy change will — all else equal — hasten the labor market recovery in these states, it may also lead to a substantial increase in layoffs since it removes firms’ financial incentives to retain workers. Consistent with this, a comparison of five states that suspended experience rating with five neighboring states that did not reveals that layoff rates (defined as new UI claims divided by the workforce) were 30 percent higher in the five that shut down experience rating. [6]

States are therefore in a bind. By maintaining experience rating, a wave of future tax increases may hamper the economic recovery and prolong unemployment. But suspending experience rating may induce additional layoffs today, when things are most dire.

To soften the blow over the next few years while maintaining the incentives for employers to retain their workforce, states could adjust each company’s UI costs so that they are temporarily evaluated based on conditions in their industry — reducing the scope for tax increases that were out of the firm’s control.

For the next few years, employers would essentially be graded on a curve, comparing their layoff history with industry peers rather than a non-existent perfect firm. For example, since restaurants have been hit especially hard during the pandemic while the average technology firm has thrived, a restaurant that laid off 10 percent of its workers would face a smaller tax increase than a computer software company that did the same.  Employers would have essentially equal incentives to maintain their workforce, but would not face crushing tax increases if they happen to be in an industry that was differentially hit by the COVID pandemic and the resulting lockdowns.

The benefits of such a policy could be substantial. Research suggests that employment is highly sensitive to UI tax increases in part because they hit firms that are already on the proverbial ropes. Anderson and Meyer (1997) find that a 1 percent increase in costs from UI taxes reduces employment by 2 percent. More recent research by Johnston (2020) finds even larger effects.

Shoring up the trust funds

The pandemic has shed light on the vulnerability of UI financing. Better maintenance of UI trust funds is vital to prepare states for the next economic downturn and improve prospects for future recoveries.

There is a large and growing gap in UI tax costs across jurisdictions. States like California and Florida have a low maximum tax rate and an annual tax base of around $7,000 — the lowest allowed by federal law — resulting in maximum potential UI taxes of about $400 per worker. In contrast, states like Washington and Oregon maintain large tax bases ($52,700 and $42,100, respectively) resulting in potential UI taxes of more than $2,000 per worker. [7]

In good times, states store revenues from UI taxes in a trust fund and that fund is drawn down in the depth of recessions. In recent years, however, state trust funds have been low even in good times — a function of benefits that are more generous than their financing (von Wachter 2016). The Department of Labor’s 2020 Solvency Report shows that despite a 10-year economic expansion, 21 state UI trust funds were below the minimum recommended reserve, just prior to the pandemic (U.S. Department of Labor 2020). [8]  As of August 2020, 11 states have already depleted their UI trust funds and have started to receive loans from the federal government to pay UI benefits. [9]

These deficits may contribute to lethargic recoveries. When trust funds are low, states must steeply raise rates to recover their costs and pay benefits. The timing of these increases could not be worse. Weak trust funds also undermine experience rating. When a state trust fund is in debt to the federal government, federal UI taxes rise on all firms in that state until the federal loan is repaid, regardless of the firm’s layoffs.

In California, for instance, the large loan balance accrued during the 2008 recession was not repaid in full until 2018, hiking payroll taxes for employers across the board. This weakens the intended incentives of experience rating to encourage employment stability and curb abuse of the UI system. According to the same Labor Department Solvency Report cited above, California’s UI trust fund was in the worst position of all 50 states just prior to the pandemic (Appendix Figure 1). [10]

The thinning tax base is a leading cause of low UI reserves. States choose how much of a worker’s earnings are exposed to UI taxation, but the federal government can “update” the minimum requirement to keep pace with inflation and the rise in average earnings. The current federal requirement of $7,000 has —remarkably — not been updated since 1982, eroding the tax base unless states have legislated increases or proactively linked their taxable UI earnings base to inflation or wage growth.

Another important consequence of a small tax base is that UI taxes become much more regressive. This can reduce the employment opportunities for part-time workers or those with low earnings since firms essentially pay an equal tax for each worker (Guo and Johnston 2020). In a state like California, an employer would pay the same UI tax for a worker who earned $8,000 annually as for one who earned $40,000.

But the latter worker is eligible for a weekly UI benefit that is five times larger ($400 per week versus just $80 per week for the lower-paid worker). Expanding the UI program’s taxable wage base in states like California would reduce the implicit penalty on hiring low-wage earners (principally seasonal and part-time workers as well as students).

To restore the health of UI trust funds, governments should expand their tax bases to be proportional to the level of benefits in their state. A basic reform to shore up trust funds could be to require states to have taxable wage bases at least half as large as their annual insurable earnings.  

Figure 3 plots the ratio of insured wages to taxable wages across the country, with larger values indicating greater insurance than funding.

Figure 3: Ratio of Annual Insured Wages to Taxable Wages (2015)

Figure 3: Ratio of Annual Insured Wages to Taxable Wages (2015)

In California the UI-insurable income is $47,000, more than six times greater than the tax base of only $7,000. This reform would naturally link revenues to the generosity of the state’s UI system, allow states to lower tax rates, and bring in sufficient revenues to cushion workers the next time there is an economic shock. Harmonizing tax bases across states would also reduce the incentive for multi-state firms to reallocate jobs and operations based on state UI tax differences (Guo 2020).

Time for action

The COVID-19 crisis has put unemployment insurance at center stage of American politics and economic policy. It has provided a lifeline for tens of millions of workers who have lost their jobs since the pandemic’s onset six months ago, while at the same time exposing the system’s vulnerabilities. Given the complexity of UI financing and the scarcity of empirical evidence on which to rely, this is an important area for additional work and exploration.

Unless policymakers take steps to reform how the states’ unemployment insurance trust funds are financed, tax hikes will hurt labor market recoveries across the country — and with them, the American worker.

Mark Duggan is the Trione Director of SIEPR and the Wayne and Jodi Cooperman Professor of Economics at Stanford. Audrey Guo is an assistant professor of economics at Santa Clara University’s Leavey School of Business. Andrew C. Johnston is an assistant professor of economics, as well as applied econometrics at the University of California at Merced.

The authors are grateful to Isaac Sorkin for his helpful feedback.

1  States differ in where they choose to fall on that trade-off. The maximum weekly benefit varies substantially across states, from a low of $235 in Mississippi to a high of $790 in Washington.  Some states also have a maximum duration of less than 26 weeks.

2  Recent research suggests that, at least in the short term, the disincentive effects of the increases in UI benefits (caused by the CARES Act) were minimal (Altonji et al. 2020).

3  More than half of states had applied or signaled their intention to apply as of August 21. Only South Dakota announced that it would not be applying (Iacurci 2020).  States that are approved are guaranteed just three weeks of federal funding for the enhanced UI benefits, though more federal funding may be available.

4  For this calculation, we extrapolate weekly UI claims through the end of the year and assume that half of those claims become benefit spells. We use data on average weekly benefit amounts and average UI spell durations to calculate the typical cost of a UI benefit spell at a little over $7,000. The product of these two values is an estimate of the UI benefit costs that will factor into UI taxes over the coming years. The actual average value could be substantially higher if the recovery is slow, as this would lead to longer and more costly average UI benefit periods.

5  These 20 states are Alabama, Arizona, Georgia, Idaho, Iowa, Louisiana, Maine, Maryland, Minnesota, Missouri, Montana, Nebraska, North Carolina, North Dakota, Ohio, Pennsylvania, South Carolina, Texas, Utah, Washington, and the District of Columbia.

6  The matched pairs are — with the states that suspended experience rating listed first — Alabama and Mississippi, Ohio and Indiana, North Dakota and South Dakota, Arizona and New Mexico, and Idaho and Oregon.

7  Appendix Table 1 lists the UI tax base in each state in 2020 along with each state’s maximum per-worker tax and maximum weekly UI benefit.

8  The Department of Labor recommends that states have reserves in their trust funds that are at least as large as the highest recent years of UI benefit payout.

9  As of August 25, 2020, 11 states have borrowed $24.4 billion from the federal unemployment account. California, New York, and Texas account for 82% of that borrowing .

10  As shown in Appendix Figure 1, California’s solvency ratio of 0.21 was lower than the other 49 states, the District of Columbia, and Puerto Rico.

Altonji, Joseph, Zara Contractor, Lucas Finamor, Ryan Haygood, Ilse Lindenlaub, Costas Meghir, Cormac O’Dea, Dana Scott, Liana Wang, and Ebonya Washington. “Employment Effects of Unemployment Insurance Generosity during the Pandemic.”  Working Paper (2020).

Anderson, Patricia M., and Bruce D. Meyer. "The effects of firm specific taxes and government mandates with an application to the U.S. unemployment insurance program."  Journal of Public Economics  65, no. 2 (1997): 119-145.

Ganong, Peter, and Pascal Noel. "Consumer spending during unemployment: Positive and normative implications."  American Economic Review 109, no. 7 (2019): 2383-2424.

Ganong, Peter, Pascal Noel, and Joseph S. Vavra.  U.S. Unemployment Insurance Replacement Rates During the Pandemic , no. w27216. National Bureau of Economic Research (2020).

Guo, Audrey. "The effects of unemployment insurance taxation on multi-establishment firms." Working Paper (2020).

Guo, Audrey, and Andrew C. Johnston. "The Finance of Unemployment Compensation and its Consequence for the Labor Market." Working Paper (2020).

Iacurci, Greg. “ This Map Shows Where States Stand on the Extra $300 Weekly Unemployment Benefits. ” CNBC, August 21, 2020. 

Johnston, Andrew C. “Unemployment Insurance Taxes and Labor Demand: Quasi-experimental Evidence from Administrative Data.” Forthcoming at  American Economic Journal: Economic Policy  (2020).

Johnston, Andrew C., and Alexandre Mas. "Potential unemployment insurance duration and labor supply: The individual and market-level response to a benefit cut."  Journal of Political Economy  126, no. 6 (2018): 2480-2522.

U.S. Department of Labor. State Unemployment Insurance Trust Fund Solvency Report 2020.  February 2020.  

Von Wachter, Till. “ Unemployment Insurance Reform: A Primer. ” Washington Center for Equitable Growth. October 2016.   

Appendix  Table A

Source:  US Dept of Labor Significant Provisions of State Unemployment Insurance Laws 2019

*For single workers. Some states offer additional dependent allowances

Appendix Figure 1 - State UI Trust Fund Solvency (as of 1/1/2020)

Appendix Figure 1 - State UI Trust Fund Solvency (as of 1/1/2020)

Source: U.S. Department of Labor Trust Fund Solvency Report 2020

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Economic measurement: progress and challenges, a note on the effects of the higher national debt on economic growth, marriage, labor supply and the dynamics of the social safety net*.

If You Want More Jobs, Help Job Creators

Small businesses are surprisingly consistent about how to solve the economic crisis.

Absorbed businessman looking at his phone during a meeting with colleagues in office.

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Absorbed businessman looking at his phone during a meeting with colleagues in office.

For most of 2013, the nation's labor markets suffered. In the first 10 months of the year, only 186,000 jobs on average were created each month. Economists generally agree that monthly job growth of at least 175,000 to 200,000 is necessary just to absorb new entrants into the labor market, with much faster job creation required to meaningfully reduce unemployment. Unfortunately, monthly averages from the first quarter of the year to the second plummeted from 210,000 to 182,000. Third quarter numbers saw a further decline to 163,000.

October was the 43rd consecutive month where more unemployed Americans left the workforce discouraged than found jobs. Four and a half years after the Great Recession, nearly 24 million working-age Americans remain jobless, are working part-time involuntarily or have left the workforce completely.

How to solve this problem? If the policy target is job creation, new business formation is the bull's-eye – that was a conclusion of John Dearie, the executive vice president at the Financial Services Forum in Washington and Courtney Geduldig, who heads Standard & Poor's Washington office, who in September published, " Where the Jobs Are: Entrepreneurship and the Soul of the American Economy ".

[ See a collection of political cartoons on the economy .]

During their research Dearie and Geduldig came across a study of Census Bureau data analyzed by scholars at the Ewing Marion Kauffman Foundation, demonstrating that virtually all net new job creation over the past three decades has come from true start-ups – new businesses less than one year old. New businesses, according to the research, create an average of three million new jobs annually, while existing businesses of any age, type or size, in aggregate, shed a net average of about one million jobs each year, as some businesses fail and as others incorporate technology and become more efficient.

Alarmingly, after decades of remarkable consistency, the number of new businesses launched each year – and the average number of new jobs created by each new firm – has declined significantly in recent years. In the year ending March of 2012, new businesses created 2.7 million new jobs, down 43 percent from the 4.7 million new jobs created by start-ups in 1999.

In other words, new businesses are America's engine of job creation, and that engine has been breaking down. According to Gedulgig:

The obvious questions for us were, why is new business formation suddenly falling off and what if anything can be done to reverse that trend? After thinking for a while about how we might find the answers, we decided that the best, most credible approach was to get out of Washington, travel the country, and meet and talk with entrepreneurs face to face.

[ See a collection of political cartoons on sequestration and the fiscal cliff .]

So, she and Dearie traveled the country and met with job creators in person to find the source of the problem. They set up roundtables with entrepreneurs in 12 cities across the United States, and asked, "What's in your way?" More than 200 entrepreneurs participated – from a Web-based software company in Seattle to an industrial construction firm in Orlando, Fla.; from a developer of bioscience technologies in Boston to a distributor of glow-in-the-dark fluorescent fish in Austin, Texas.

The pair expected to hear different problems, frustrations and obstacles because the U.S. economy is incredibly diverse. The start-up scene in Cambridge, Mass. is different than the start-up scene in Columbus, Ohio or Orlando, Fla. or Austin, Texas or any of the other cities Dearie and Geduldig visited.

But astonishingly, and hugely significant from the standpoint of potential policy solutions, the problems and obstacles encountered by entrepreneurs across the country are remarkably consistent:

  • "We have the jobs, but can't find enough people with the skills we need."
  • "Our immigration policies don't attract and retain the world's best talent."
  • "Access to start-up capital is even more difficult in the wake of the 2008 financial crisis."
  • "Over-regulation is killing us."
  • "Tax complexity and uncertainty is diverting far too much of our time and attention away from our new businesses."
  • "There's too much economic uncertainty – and it's Washington's fault."

[ See a collection of political cartoons on immigration .]

Over the course of their summer on the road, Dearie and Geduldig learned several critical realities:

First, new businesses are extremely fragile. A third of startups fail by their second year, half by their fifth. However, new businesses that survive tend to grow and create jobs at very rapid rates.

Second, the policy needs and priorities of new businesses are unique. Start-ups are different from existing businesses. While they confront challenges similar to those of all businesses, their ability and resources to successfully navigate those challenges are much more limited.

Third, policymakers in Washington don't sufficiently understand or appreciate the unique nature, importance, vulnerability and needs of start-ups. Focused on the priorities of either large corporations or the small business community, policymakers too often overlook and neglect the economy's true engine of job creation.

[ See a collection of political cartoons on Congress .]

Finally, policy help for America's job creators is urgently needed. Given the critical role they play in our nation's economy as the principal source of innovation, growth and job creation, the country's young businesses need and deserve a comprehensive policy framework designed to cultivate and nurture start-ups. Dearie explains,

We call that preferential policy framework an 'on-ramp to viability'. New businesses are an enormously important aspect of our economy, but they're also exceptionally fragile. We need to do a much better job of actively cultivating start-ups – providing more favorable circumstances for their formation, survival and growth.

Without that policy help, the authors argue, the nation stands little chance of creating the jobs necessary to put millions of out-of-work and underemployed Americans back to work. In their book, Dearie and Geduldig present a 30-point policy game-plan for unleashing the job-creating capacity of the entrepreneurial economy. Some highlights include:

  • Cultivating new business formation, survival and growth by providing start-ups substantial tax and regulatory relief during their critical first five years
  • Incentivizing badly needed workers with backgrounds in science, technology, engineering and math – or STEM – by awarding new graduates a $50,000 federal tax credit applied up to $10,000 per year during their initial five years of employment
  • Launching a dialogue between business and education leaders to ensure that K-12, college and university curricula serve both the broad education needs of American students as well as the skill needs of 21st century businesses
  • Attracting and retaining the world's best talent by eliminating the arbitrary and self-defeating cap on H-1B visas. Creating a "Start-Up" visa for foreign-born entrepreneurs; awarding green cards to all foreign-born graduates of American colleges and universities meeting security requirements who earn degrees in STEM fields
  • Accelerating the growth of exports by negotiating trade agreements with the world's largest and fastest growing economies like India, China and Brazil.

[ Read the U.S. News Debate: Should the Federal Reserve Keep Interest Rates Low? ]

Dearie and Geduldig say they understand that the details of their proposals can and should be debated, and that no doubt they have overlooked important issues or underestimated certain political realities. Geduldig says,

The real significance of our proposals is that they respond directly and specifically to what the nation's job creators told us they need. But from a legislative standpoint, there are any number of approaches that policymakers can take in implementing what we've proposed. We tried to be specific enough in making our recommendations to be meaningful, but not so proscriptive that we box in policymakers or come across as partisan in any way. Our proposals aren't Republican or Democratic. We're confident that our agenda for job creation can find support on both sides of the aisle.

Having tried an $800 billion fiscal stimulus and nearly five years of near-zero interest rates thanks to the Federal Reserve, policymakers in Washington need to consider a new approach. Dearie and Geduldig's research provides ideas on how to get that started, just in time for the new year.

Lisa Chau  is the founder of Alpha Vert, a private consultancy focused on social media and cross-platform marketing. Previously, she worked for her alma mater, Dartmouth College, as assistant director of alumni affairs and assistant director of PR for the Tuck School of Business. She has also taught at MIT and guest lectured Baruch College and The New School.

  • Read Chad Stone: Failing to Extend Unemployment Benefits Is Lose-Lose for Workers and the Economy
  • Read Ryan Alexander: The Bipartisan Budget Deal Should Be a Beginning, Not an End
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Twelve Ways to Fix the Youth Unemployment Crisis

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Elisabeth jacobs elisabeth jacobs senior fellow - center on labor, human services, and population at the urban institute, former brookings expert @jacobselisabeth.

May 22, 2014

The Great Recession was particularly devastating for America’s young workers. Nearly 6 million 16- to 24-year-olds neither have jobs nor are pursuing a degree. This disconnect can have a “scarring effect,” which can negatively impact their long-term employment prospects and lifetime earnings.  In her new paper Elisabeth Jacobs analyzes the crisis of youth unemployment and America’s sprawling workforce development system.  She makes recommendations for how to improve America’s higher education systems, apprenticeship programs, paid volunteering programs, primary and secondary education, and tax policy.

In order to address the youth unemployment crisis, policymakers should consider the following proposals:

1.     Fully fund community colleges

2.     Expand and revise the Registered Apprenticeships program at the Department of Labor

3.     Establish Career Internship Standards

4.     Expand the Earned Income Tax Credit (EITC) to younger workers.

5.     Increase the size of the AmeriCorps

6.     Appropriate funds for the Youth Opportunity (YOG) Program

7.     Overhaul school dropout prevention policies by offering them programs that lead to employment

8.     Fully fund and reform Career and Technical Education (CTE) programs in high schools

9.     Expand current mentoring programs

10.  Create incentives for public private partnerships to benefit young unemployed people

11.  Seek input from the private sector

12.  Renew the financial commitment to current programs that reconnect young adults to education and employment opportunities.

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America’s underemployment problem

Despite record job growth, employees are not necessarily finding sustainable jobs that meet the cost of living surge.

Hiring signs are posted outside a gas station in Cranberry Township, Butler County, Pa.

New York City, USA – Makalah Monroe works at an Outback Steakhouse in Laurel, Maryland. She is a student and the only one in her household with a car. By any account, Monroe has a full plate of responsibilities that she is working hard to keep up with. She works full-time and yet struggles to get by.

“I often leave an eight-hour shift with only about $60 in hand,” Monroe told Al Jazeera.

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With credit card, phone and insurance bills piling up, her current pay is just not cutting it for her. Often, she has to decide which gets paid and what has to wait.

“I usually have to call the car and insurance companies and tell them I either need to pay late or pause payments entirely,” she added.

Monroe is like the millions of Americans whose financial situation hinges on the outcome of the US presidential election. President Joe Biden is set to focus on a number of economic wins during his first term, including record job growth, low unemployment and tumbling gas prices, among other key economic indicators that have made it evident that the US economy is on the upswing.

But the incumbent president, his Republican opponents, third-party candidates and Biden’s longshot Democratic challengers face the harsh realities of underemployment in the United States.

However, with significant economic growth, the question is: Do Americans like Monroe have a better chance for social mobility under the eventual Democratic nominee – most likely Biden – or the most likely Republican nominee, former President Donald Trump?

According to data compiled by the Economic Policy Institute, underemployment sits slightly below 7 percent – the lowest since the agency began tracking the data in 1990. When Trump left office, underemployment was at more than 14 percent. After a peak in March 2021, there has been a steady decline since.

“Since the recovery from the COVID-19 pandemic, unemployment has declined pretty steeply and quickly,” said Lonnie Golden, professor of economics and labour-human resources at the Pennsylvania State University.

Cost-of-living surge

While the Biden administration saw record job growth, it is not clear that the new jobs in question are well-paying sustainable jobs that meet the cost of living across the US.

“In the last year, we’ve seen an uptick in the way the Bureau of Labor Statistics measures the number of people working part-time but would prefer to be working full-time hours,” said Golden.

“These figures kind of mask the extent of underemployment for people because they’re seeking a second job for more income,” she added.

Despite the economic gains, child poverty is up 137 percent, and average rent prices have surged nationally.

According to a new report out from Zillow, the percentage of income needed to rent a median-price apartment in the US jumped by 40 percent since before the start of the COVID-19 pandemic.

In some cities, it is even higher.

In Miami, Florida, renters need to spend 43 percent of the average income to afford a median-price rental apartment. The minimum wage in Miami is $12 an hour.

Nationally, the minimum wage’s buying power peaked in 1968 and has not kept up with the cost of living since.

According to a report by the Federal Reserve Bank of New York, the number of those underemployed is much higher – 33 percent among college graduates. That is because its metric considers graduates working jobs that do not require a college degree.

Amid the recovery, much of the consistent job gains were in the leisure and hospitality sector – an industry that is notorious for low wages.

“The low wage pool is what’s growing the American workforce,” Saru Jayaraman, founder of One Fair Wage, told Al Jazeera.

Jayaraman asserts that Biden, who historically is more pro-worker than his Republican challengers, could do much better strategically if he fully embraces issues about payment.

“It’s getting harder and harder to tell workers to vote for a Democrat who will raise wages when that doesn’t happen,” Jayaraman said.

However, during the last election cycle, Biden did follow through on many of his promises.

One of Biden’s first actions as president was to raise wages across the board via the Raise the Wage Act. But that did not pass as the bill was blocked by Republicans. Biden, however, was able to raise the minimum wage for all federal contractors. The US government is the nation’s biggest employer.

Biden has not acted on abolishing the subminimum wage that allows tipped workers to make a wage of only $2.13 an hour – although many states require higher direct wage amounts for tipped employees. The rest is supposed to be made up in tips – a move that is widely accepted in the food service industry and other domestic industries.

INTERACTIVE_US_MIN_WAGE_FEB5_2024-1707284349

The Trump administration, however, actively tried to limit tipped wages for these same restaurant workers. The former president pushed for business owners to take control of tips and pass them along to workers as they see fit.

Proposed solutions to underemployment include a number of compounding proposals, one of which is the nonprofit One Fair Wage’s push to abolish the subminimum wage nationally.

One Fair Wages efforts have helped get wage measures on the ballot all over the country, garnering more votes than either presidential candidate.

“In 2020, more people voted for a $15 minimum wage in Florida than [the number of votes for] either Trump or Biden,” Jayaraman said.

Faults in proposed fixes

One proposed fix has been a Universal Basic Income. Americans got a taste of that in the early days of the COVID-19 pandemic when the government released one-time payments. That stimulated the economy. Consumer spending surged.

In May 2020, personal spending rose 8.2 percent from the month prior. That had the same effect during the second round of government payouts. Consumer spending ticked up by more than 4 percent in the months following the second release, which was in early 2021.

However, that was one of the many reasons why inflation soared in the years following.

Printing more money means that the individual dollar is less valuable than it once was, driving up prices. Yet wages did not grow nearly fast enough.

“Only a few years ago, it used to be that one in three Americans working full time lived in poverty. We are inching closer to one in two,” Jayaraman said.

The Department of Labor for its part is taking steps to address massive shifts in the economic makeup of the US. In September, the department announced a $57m grant to expand job training programmes, including in large population centres like New York, California, Illinois and Ohio.

The move is aimed at helping those who are underemployed pivot into high-demand and expanding industries related to addressing climate change and staffing up the US’s infrastructure projects.

While the programme is expected to have widespread effects, the Labor Department says it will help about 10,000 workers.

It also comes alongside a wave of unionisation efforts across big businesses like Amazon to even small independent coffee shops. Several companies and trade have successfully lobbied for higher wages and fairer contracts.

That, however, came from empowered workers in individual sectors rather than overarching policies from Washington.

The Biden administration has been largely supportive of unions that have called for fairer contracts like the United Auto Workers, for instance.

Movement, however, is slow. Wage increases are often staggered marginally over several years. The required wage increases for federal contractors were unilaterally implemented by executive order in April 2021 – three months into Biden’s presidency. It took effect a few weeks ago.

But as Washington hypothesises over a myriad of potential solutions, people like Monroe still have rent and electricity bills piling up.

“I’m basically living paycheque to paycheque right now,” Monroe said.

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Unemployment, the strategies to adopt that could help reduce it

Unemployment is a complex issue influenced by various factors, including technological advancements, globalization, and economic policies. The COVID-19 pandemic has also exacerbated the problem, resulting in job losses and economic uncertainty for many individuals and businesses.

The impact of unemployment is not limited to those who are directly affected. It can have far-reaching consequences that affect families, communities, and entire nations.

Table of Contents

How to reduce the unemployment problem

The unemployment problem is not one that can be solved overnight, and there is no one-size-fits-all solution. However, there are steps that governments, businesses, and individuals can take to address this issue and create a more equitable and prosperous society:

Stimulate the economic growth

Stimulating economic growth is essential for creating job opportunities and reducing unemployment. Economic growth refers to an increase in the production of goods and services within an economy. When the economy grows, businesses expand, and job opportunities increase. Governments can implement a range of policies and measures to stimulate economic growth, including investment in infrastructure, tax incentives, and entrepreneurship support.

Infrastructure investment is a crucial component of economic growth. Governments can invest in infrastructure projects , such as transportation networks, energy systems, and communication networks, to create job opportunities in the short term while improving the economy’s competitiveness in the long term. Infrastructure projects can also improve the quality of life for citizens, making the country a more attractive place for businesses to invest and grow.

Tax incentives can also stimulate economic growth by encouraging businesses to invest and expand. Lowering corporate taxes and offering research and development (R&D) tax credits can incentivize businesses to invest in innovation and create new jobs. Also, tax incentives can encourage foreign investment, further stimulating economic growth.

Improve education and skills training

Improving education and skills training is crucial for reducing unemployment. Many job seekers lack the skills necessary to succeed in today’s job market.

Governments and businesses can address this by investing in education and skills training programs. This can include vocational training, apprenticeships, and job retraining programs. These programs provide individuals with the skills they need to succeed and increase their employability.

Vocational training programs offer job-specific training that prepares individuals for specific careers. Apprenticeships provide on-the-job training and education, allowing individuals to learn a trade while earning a wage. Job retraining programs provide opportunities for individuals to update their skills and transition into new careers.

By investing in education and skills training programs, we can provide individuals with the tools they need to succeed in the job market . This benefits individuals and supports the economy by ensuring businesses have access to a skilled workforce.

Encourage Entrepreneurship

Entrepreneurship is a vital driver of job creation and economic growth. Entrepreneurs create jobs by starting businesses and introducing new products and services to the market.

Governments can encourage entrepreneurship by providing access to funding, reducing regulatory burdens, and creating a favorable business environment . By doing so, governments can create an environment that supports business growth and innovation, leading to the creation of new jobs and the growth of existing businesses.

Access to funding is crucial for entrepreneurs, as it allows them to start and grow their businesses. Governments can provide funding opportunities through grants, loans, and venture capital programs. This can help entrepreneurs overcome the financial barriers to starting a business and enable them to focus on developing innovative ideas.

Regulatory burdens can hinder entrepreneurship by creating barriers to entry and limiting business growth. Governments can reduce regulatory burdens by streamlining processes and simplifying regulations . This can enable entrepreneurs to start and grow their businesses more easily and efficiently.

Implement targeted employment programs

Some individuals face unique barriers to employment, such as disabilities or long-term unemployment. Governments can address these barriers by implementing targeted employment programs.

Tax incentives can encourage employers to hire disadvantaged individuals . Governments can provide tax incentives to businesses that hire individuals with disabilities or those who have been out of work for an extended period. This can create job opportunities for those who employers may have previously overlooked.

Job placement services can also help disadvantaged individuals find employment. Governments can provide job placement services, connecting individuals with potential employers and helping them prepare for interviews and job applications.

On-the-job training can provide individuals with the skills they need to succeed in the workplace. Governments can provide subsidies for on-the-job training, allowing businesses to hire and train disadvantaged individuals. This can increase their employability and lead to long-term job opportunities.

Read also: The 10 most successful startups ever

Support small and medium-sized enterprises (SMEs)

Small and medium-sized enterprises (SMEs) are the backbone of many economies. These businesses create job opportunities, contribute to economic growth, and promote innovation . Governments can support SMEs by providing access to financing, reducing regulatory burdens, and promoting exports.

Access to financing is crucial for SMEs to grow and create job opportunities . Governments can provide funding opportunities through grants, loans, and venture capital programs. This can help SMEs overcome financial barriers and enable them to invest in growth and innovation.

Regulatory burdens can limit the growth and competitiveness of SMEs. Governments can reduce regulatory burdens by streamlining processes and simplifying regulations. This can enable SMEs to operate more efficiently and effectively.

Promoting exports can help SMEs reach new markets and increase their revenues. Governments can provide export promotion services, such as trade missions and export counseling, to help SMEs expand their international presence.

Unemployment is a complex issue but can be addressed

The unemployment problem is a complex issue that requires a combination of short-term and long-term strategies. Stimulating economic growth , improving education and skills training, encouraging entrepreneurship, implementing targeted employment programs, and supporting small and medium-sized enterprises are all effective ways to reduce unemployment and promote economic prosperity.

Creating a favorable environment for businesses to invest and grow , providing individuals with the necessary skills and resources to succeed in the job market, and supporting disadvantaged individuals and SMEs can lead to the creation of new job opportunities and economic growth.

It is important to note that these strategies are not one-size-fits-all and require tailored approaches to meet the unique needs of different communities and individuals. By working together and implementing a comprehensive approach, we can address the root causes of unemployment and create a more equitable and prosperous society for all.

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Book cover

Management Strategies to Survive in a Competitive Environment pp 155–172 Cite as

Defining Appropriate Government Strategies to Reduce Unemployment During COVID-19 Pandemics

  • Hakan Kalkavan 3 ,
  • Halim Baş 3 ,
  • İrfan Ersin 3 ,
  • Serkan Eti 3 &
  • Serhat Yüksel 3  
  • First Online: 28 April 2021

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5 Citations

Part of the Contributions to Management Science book series (MANAGEMENT SC.)

The unemployment problem became more significant, especially after COVID-19 pandemics. This situation affected both developing and developed countries in a negative manner. Hence, the policies implemented by the states to prevent unemployment were also carefully considered during this process. Within this scope, various suggestions of ILO and OECD institutions have been made regarding these strategies. This study aims to identify the significant strategies countries should develop to reduce unemployment. For this purpose, 10 basic strategies offered by OECD to reduce the unemployment problem are considered. Moreover, an evaluation has been carried out by considering fuzzy DEMATEL methodology. The findings demonstrate that ensuring adequate income protection is the most appropriate criterion to minimize the unemployment problem in the COVID-19 process. During the pandemic period, economic rescue packages were announced by many governments and institutions. Despite all this support, millions of people lost their jobs in this process. Considering the analysis results obtained in this study, it would be appropriate for governments to focus primarily on the unemployed. In this framework, the implementation of strategies that will prevent citizens from being unemployed will contribute to the solution of this problem. Despite all these efforts, there may still be people losing their jobs in this process. Therefore, income-generating policies should be implemented especially for these people. For this purpose, the duration of unemployment benefits may be extended. In this way, it will be easier to combat the unemployment problem caused by the COVID-19 pandemic.

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Kalkavan, H., Baş, H., Ersin, İ., Eti, S., Yüksel, S. (2021). Defining Appropriate Government Strategies to Reduce Unemployment During COVID-19 Pandemics. In: Dincer, H., Yüksel, S. (eds) Management Strategies to Survive in a Competitive Environment. Contributions to Management Science. Springer, Cham. https://doi.org/10.1007/978-3-030-72288-3_11

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How to Solve Unemployment Problem with 7 Strategies

How to Solve Unemployment Problem with 7 Strategies

Unemployment is a problem that has been plaguing the United States for many years. It is a problem that is not only difficult to solve, but also has a lot of complex factors involved. However, there are a few things that can be done to try and solve the problem. First of all, you need to understand what unemployment is, its consequences , and we will provide how to solve unemployment problem with the suggested strategies below!

What is unemployment?

Why is unemployment an issue, how does unemployment impact individuals and communities, how to solve unemployment problem.

In terms of economics, unemployment refers to the situation of workers who seek a job but are unable to find one or who are not employed by the group, business, or community. The percentage of unemployed workers in the overall social labor force is known as the unemployment rate.

The remaining persons of working age are those who are not in the labor force in addition to those who are employed and jobless, including students, housewives, people who are disabled, and those people who do not wish to look for employment for various reasons.

Short-term unemployment helps workers find jobs they like and match their aspirations and abilities, increasing social efficiency. However, this rest period too long will be a problem and the longer it is left, the more difficult it will be to solve. And of course, with that comes a lot of consequences.

What is unemployment?

Unemployment, that’s a problem the whole world needs to worry about. No matter how economically advanced a nation is, unemployment still exists. Regardless of how low or high the unemployment rate is, it will always be a concern.

Unemployment is an objectively real social problem that has detrimental effects on the economy as a whole. As a result, there is a greater need than ever to find a solution to the unemployment issue because doing so not only helps to foster social stability but also the circumstances for economic growth.

Unemployment can have significant impacts on individuals and communities, both socially and economically. Unemployment can result in financial hardship for individuals and their families, as they may struggle to make ends meet without a steady income.

Moreover, unemployment can take a toll on mental health, as individuals may experience stress, anxiety, depression, and low self-esteem. The longer individuals remain unemployed, the greater the risk of negative mental health outcomes.

Unemployment can lead to social isolation, as individuals may feel disconnected from their communities and social networks. This can further exacerbate mental health problems. It can increase crime rates, as individuals who are struggling financially may resort to illegal activities to make ends meet.

High levels of unemployment can reduce economic growth, as fewer individuals are contributing to the economy through work and consumer spending. Unemployment can lead to increased government spending on social welfare programs such as unemployment benefits, food stamps, and housing assistance.

Besides that, it can lead to increased inequality, as individuals who are unable to find work may fall further behind economically, while those who are employed may continue to thrive. High levels of unemployment can lead to decreased social cohesion, as individuals may feel disconnected from their communities and less invested in the common good.

How does unemployment impact individuals and communities?

Solving the unemployment problem is a complex task that requires a multifaceted approach. Here are some strategies that can be used to address the issue:

1. Promote economic growth

Governments can encourage economic growth by investing in infrastructure, promoting business development, and providing tax incentives. Economic growth can lead to job creation and reduced unemployment rates.

2. Improve access to education and training

Providing education and training opportunities can help individuals develop the skills they need to obtain employment in a variety of fields. This can include vocational training, apprenticeships, and continuing education programs.

3. Reduce discrimination in hiring

Addressing discrimination in hiring practices can help ensure that individuals have equal access to employment opportunities. This can include measures such as affirmative action programs and awareness campaigns to promote equal opportunity.

4. Provide job search assistance

Providing job search assistance, such as resume writing and interview coaching, can help individuals find and obtain employment opportunities.

5. Support small businesses

Small businesses are often the primary source of job creation, and supporting their growth and development can help create new job opportunities.

6. Encourage entrepreneurship

Encouraging entrepreneurship can help create new businesses and job opportunities. This can include providing access to capital, mentorship programs, and business incubators.

7. Implement government job creation programs

Governments can implement job creation programs to provide employment opportunities in areas such as infrastructure development, public services, and environmental conservation.

How to solve unemployment problem

In conclusion, unemployment is an issue because it can have significant social and economic impacts on individuals and communities. We need to find ways to reduce and solve this problem as soon as possible. So, how to solve unemployment problem?

Addressing the problem requires a multifaceted approach, including government investment in job creation programs, addressing discrimination and inequality in hiring practices, and providing education and training opportunities for individuals.

By addressing the root causes of unemployment, societies can work towards reducing unemployment rates and creating more job opportunities for individuals, leading to improved outcomes for individuals and communities.

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Economics Help

Does Fiscal Policy solve unemployment?

Readers Question: Is the fiscal policy effective/the best policy to deal with unemployment?

It is an interesting question and one that is likely to generate different views from within the ranks of economists.

To give a very rough overview:

  • Keynesians say yes , fiscal policy can be effective in reducing unemployment. In a recession, expansionary fiscal policy will increase Aggregate Demand (AD), causing higher output, leading to the creation of more jobs.
  • Classical/monetarist economists  say no. Fiscal policy will only cause a temporary increase in real output. In the long run, expansionary fiscal policy just causes inflation and does not increase real GDP. Monetarists argue that to reduce unemployment it is necessary to use supply-side policies which increase the flexibility of labour markets (e.g. reducing power of trades unions)

Theory – How fiscal policy can reduce demand-deficient unemployment

In a recession, we see a rise in unemployment as firms lay off workers.

  • In response to the recession, there is a rise in personal savings as firms cut back on investment and households cut back on consumer spending.
  • This reduction in spending causes a negative multiplier effect and magnifies the initial fall in unemployment.
  • This leads to a negative output gap, with unemployed resources.

In this situation, the government can usually borrow from the private sector at a relatively low cost of borrowing. The government can spend money on infrastructure projects. This injects money and spending into the circular flow – causing a rise in aggregate demand.

ad-increase

Fiscal policy (cutting taxes and/or increasing spending) can lead to an increase in AD and rise in real GDP.

The increase in economic growth will cause increased demand for workers, providing employment and reducing unemployment.

Limitations of fiscal policy for solving unemployment

Fiscal policy cannot solve supply-side unemployment. (the natural rate)

If there is frictional or structural unemployment, fiscal policy will not solve this. For example, suppose some former miners are unemployed. The problem here is lack of skills and geographical immobilities. Therefore, what is needed is supply-side policies. Increasing AD and economic growth does not solve the mismatch of skills. Therefore, when the economy is at full capacity, classical economists are correct. If the economy is growing and the government pursue fiscal policy, it is likely to be ineffective in reducing unemployment.

  • At close to full employment, higher government borrowing will cause crowding out (government borrowing reduces the size of the private sector and reduces private sector investment). Also, with a growing economy, higher government borrowing may push up bond yields and higher interest rates may reduce private sector investment.
  • Also, if the economy is at full employment, and the government pursue expansionary fiscal policy, we will see higher inflation.

keynesian-increase-ad-lras

(Impact of fiscal policy, if the economy is at full employment.)

Other limitations of fiscal policy

  • Tax cuts may be saved not spent. In a deep recession, consumers may be reluctant to spend – even if you cut taxes. It may also depend on which taxes you cut. Low-income workers have a higher marginal propensity to consume. Therefore, cutting taxes will have a bigger effect on improving spending.
  • Time Lags. Fiscal policy can take time to implement. The government have to decide which projects to follow, and there will be time before the project gets off the ground.
  • See: Criticism of fiscal policy for more details

However, despite these limitations, it can play a role in increasing AD and reducing cyclical unemployment.

US Fiscal policy in 2009

In February 2009, Congress approved President Obama’s $787 billion American Recovery and Reinvestment Act. This was a package of tax cuts and spending increases – financed by higher borrowing. It involved tax cuts of $288 billion. Extended unemployment benefits of $213 and $275 billion in federal contracts, grants, and loans. The package wasn’t implemented immediately and took several months for the higher spending to be spread throughout the economy. The government also approved a bailout of the automobile industry which helped avoid job losses in that sector.

us-unemployment-05-17-fiscal-stimulus-act

Given the time lags involved, the package was successful in limiting the scope of the 2009 recession and creating an economic recovery. As a result of the economic recovery, unemployment fell at the end of 2009 and consistently fell into 2017.

us-economic-growth

Strong recovery in the US.

Limitations of fiscal policy

  • The fall in unemployment wasn’t just due to this expansionary fiscal policy.
  • At the same time, there was also a loosening of monetary policy – with interest rates cut to 0.5% and a policy of quantitative easing. This monetary easing also contributed to the economic recovery.
  • Also, the natural economic cycle is for the economy to recover after a period of economic downturn.
  • Some economists, such as Paul Krugman argued that the expansionary fiscal policy was insufficient and only a small % of the US economy. A bigger fiscal package would have enabled a stronger recovery.

However, compared to the Eurozone – which didn’t pursue expansionary fiscal policy, the US recovery was stronger.

unemployment-uk-euro-us

Also, some economist such as   John Taylor  of Stanford, and  Eugene Fama  of the University of Chicago were more suspicious of fiscal policy arguing it leads to higher borrowing costs, crowding out and just ends up with higher government borrowing. However, despite the rise in US borrowing, bond yields fell during this periods, and the budget deficit fell with the economic recovery.

us-federal-deficit

Higher debt did not cause higher bond yields but falling bond yields, suggesting there was strong demand for buying government debt.

  • Can UK and US prevent a Recession? 
  • Expansionary fiscal policy
  • US economy under Obama

9 thoughts on “Does Fiscal Policy solve unemployment?”

  • Pingback: Impact of Expansionary Fiscal Policy — Economics Blog
  • Pingback: Expansionary Discrectionary fiscal policy — Economics Blog

in the modern society and current economic situation there is no room for classic economists and therefore it is neccessary to take the optimistical view that FP does reduce unemployment no matter how theoretical that answer is.

  • Pingback: Reducing the Unemployment Rate | Economics Blog

what impact or effect does fiscal expansionary policy have on the fishing sector?

Use of fiscal policy to solve unemployment problem in countries like India requires a different kind of treatment in the sense that the quality of money spent by the government is important. The quantity or size and no of spending programes have increased but they have not reached the people who deserve it. A holistic approach of socio-political implications and involvement along with economic implications of fiscal policy become essential. Along with the national the subnational finances play critical role in doing so.

There is an easy way to reduce unemployement…reduce capital gains and business tax. This reduces the risk side of the equation for those looking to start / expand their business and thus generates business expansion and jobs. Problem is this is seen as a tax cut for the wealthy…

from my point of view, i believe fiscal policy can reduce unemployment conversely, it also has its bad sides which sometimes overshadow its usefulness in solving unemployment.

its looks like that it reduce unemployment if we look on Keynesian grafs . but when ad curve increases the effect on wages will increase which give the feed back to increase in money demand consequently increase in the rate of interest which will hurt the future investment and unemployment increases by the fiscal policy . monetary policy has always win win situation , by increasing supply of money rate of interest will reduces and feed back of this it increases investment (if there is not liquidity trap) and consequence will be generation of employment.

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How to Solve Unemployment in a Country: Best Tips

Unemployment is a global issue which happens in developed, underdeveloped and developing countries. The major evidence is that even the developed countries are battling with unemployment issues.

A survey has suggested that in 2013 December, about 6.7% of Americans were unemployed.

The international labor organization has mentioned the statistics of both employed and unemployed in 2012 which states that about 6% of the world population are unemployed and youths are the ones who are unemployed i.e youth unemployment .

The government and individuals should take proper remedy steps to solve the unemployment problem and develop the nation’s economy through employment.

solve unemployment in country

What is Unemployment?

Unemployment can be defined as when an individual is hunting for employment and does not find a job, then unemployment arises.

Unemployment is one of the major crises that happens around. The term unemployment measures the economy’s health.

The unemployment rate is usually used for measuring unemployment. It is usually the unemployed individuals divided by a number of labor force people.

The reports as per the international labor organization said that about 200 million globally or about 6% of the complete workforce was unemployed in 2012.

In that manner let’s glimpse through a few aspects of unemployment and the various aspects related to it.

Unemployment Statistics:

The unemployment rate reached a post during World War II to a high of 9.7% in 1982. The data regarding unemployment and earnings was captured by the Department of Labor’s Bureau of Labor Statistics (BLS).

There were other reports too which mentioned the unemployment rate of 9.6% in the year 1983 which was due to an economic recession. This was after the great depression of 1983. It was in 1989 that the unemployment rate dropped to 5% but started enhancing again. This led to 6.8% in 1991 and to 7.5% in 1992.

Once there was an enhancement in an economy, the unemployment rate fell to 6.9% in 1993. The good news was that the unemployment rate fell to about 4.5% in 1998 and to 4% in 2000 which was considered as the lowest in three decades.

It was in 2001 that recession crept in and unemployment rates rose again and then the terrorist attack on September 11, 2001, in the United States was also a reason of unemployment. By 2003 June, about 9.4 million was unemployed where the unemployment rate was elevated to 6%. There was again a decline in the unemployment rate from 2003 to 2007.

The fluctuation started again and there was a rise in the year 2007 and the unemployment rate was 4.9% in 2008 January. People without a job and looking for work are counted as unemployed. It does not include people who have lost their jobs and not looking for it.

Types of Unemployment:

With the many causes of unemployment , the prime causes of unemployment are listed below. People fall under one of these categories as a reason for unemployment. Some of the types of unemployment are as follows:

1. Structural unemployment:

At times when there is a mismatch of skills in the work industry this unemployment occurs. Some of them are partitioned as mentioned below.

Geographical immobility:

Occupational immobility:, technological change:, structural change in economy:, 2. frictional unemployment:.

This type of frictional unemployment prevails in many countries. This type of unemployment is the period which is taken by the individuals while they change their job. Examples are graduates who try to find another job. It surely takes time in order to find another job.

3. Real wage or classical unemployment:

This type of unemployment takes place when the wages in the competitive job market moves above equilibrium.

For example, when the supply of labor is higher than the demanded labor, this type of unemployment takes place. Times when trade unions and labor organizations bargain for higher wages are when this type of unemployment occurs. This leads to a decline in demand for labor.

4. Voluntary unemployment:

Voluntary kind of unemployment is one where people try to be unemployed than being employed. A simple example can be that if individuals are able to get a good benefit, then they prefer to stay back with the benefit rather than being employed.

Frictional unemployment also falls under this category where individuals tend to choose a job until they wanted an appropriate one.

5. Cyclical unemployment or Demand deficient:

The demand deficient or cyclical unemployment takes place when the economy falls below its full capacity. A simple example can be the aggregate demand which falls below at times of recession which leads to weakening in negative economic growth and output.

When there is a drop in the output then the employment of workers will also be less which leads to the development of fewer goods.

There are many firms which move out of the business and result in redundancies in large-scale. There are more workers being laid off during recessions which lead to unemployment.

6. Seasonal unemployment:

This is one category of unemployment which takes place due to seasonal change in the job nature. Few industries that are affected by seasonal unemployment are catering industries, fruit picking, tourism, and hospitality.

7. Youth unemployment:

Youth unemployment is another major concern that is happening. 73 million people are globally neither unemployed nor undertaking education.

Youth unemployment is three times ahead of the elders. In the US, the youth unemployment rate is about 5.7% and about 17% of the nation’s youth are jobless.

8. Casual Unemployment:

Casual employment is the type of employment that comes in, for employees who work on a day to day basis or on short term contracts. When the contract is completed, the employee will get unemployed and that type is known as casual unemployment.

This type of unemployment would not stand for long, as the workers get another contract work or the earlier work gets extended. Most of the places where casual employment exists for people are dockyards, market places, film industry (junior artists), etc.

Here the work of the workers gets completed or lasts for just a few hours or day long and then they get back to the same unemployment position. This process goes on until they find a permanent job. It is very difficult to provide a definite solution to such casual unemployment issue.

9. Chronic Unemployment:

This type of unemployment is mainly seen in undeveloped countries. When a country is suffering long term of unemployment on a whole, then it is known as chronic unemployment. Some of the main reasons of chronic unemployment are,

  • Weak economic condition
  • Lack of developed resources
  • High population growth
  • Primitive state of technology
  • Low capital formation, etc.

Effects of Unemployment:

Unemployment effects in nations lead to a number of hassles, in that manner let’s glimpse through a few effects of unemployment.

1. Few tax revenues:

Due to unemployment, there are fewer people who work and earn money and hence only less income tax would be collected. There would be less tax revenue collected by the government and would have a large impact on government finances.

2. High supply-side cost:

Due to unemployment, there would be a number of people who do not work. The government needs to teach the employees with skills that are required for the present industry conditions.

So it is the duty of the government to spend by training skills so that they match with the latest industry. This is a drain on the government’s economy due to unemployment.

3. Enhanced welfare cost:

During the unemployment period, few people would work but almost all people would claim for benefits.

Due to this, the government money is drained again. Government finance is used for providing benefits for people.

4. Lower wages:

At times of unemployment, there is an increased supply of labor for employment in firms. In this scenario, there is a decline in wages as there is a number of people ready to work for lower wages.

By this way, the industries have a positive effect and their variable cost would decline.

5. Surplus labor:

Due to the impact of unemployment, there are a number of candidates ready to work and hence, the industries have enhanced choice for employment. They choose skilled labors with more experience.

6. Enhanced demand for inferior goods:

Few goods in an economy are purchased more at times of lower-income for individuals and these are mentioned as inferior goods.

During the unemployment period, people switch over to purchase more of inferior goods due to low income. Inferior goods owner would have a higher profit and sales revenue.

7. Goods and services on less demand:

Unemployment makes individuals avoid buying goods and services as they possess a very low income. In such scenarios, there is lower sales revenue that leads to a decline in profits.

8. Elevated training cost:

Though there are many firms that benefit themselves from low wage cost as a result of unemployment, they also need to spend and train employees as they have been out of work for a long period.

Training employees are accomplished with the firm’s resources and time hence, there is an increase in the employee’s cost.

9. Lower living standards:

Private savings and benefits are the only sources which people rely on at times of unemployment. They do not spend much and buy only fewer goods for their living and hence, they are pushed to a lower standard of living.

10. Loss of depression and confidence:

Unemployment is a period where people are pushed to depression and loss of confidence. It also affects one’s mental and physical health . Almost all people who are unemployed are lead to stress-related depression and also ill most of the time.

11. Loss of skills:

Skills and capability to work are lost by individuals during the unemployment period. The prolonged period a person is unemployed, the more the industries have to train them in order to make them work.

Ways to Solve Unemployment Problem:

Unemployment can be solved if planned properly by the nation from the start. There are a number of ways by which the natural rate of unemployment can be solved.

Some possible ways by which the government and the people can work together to solve long term unemployment are

  • Ensuring political stability
  • Enhancing the educational standards
  • Control of population growth in the nation
  • Launch of new empowerment programs
  • Encouraging self-employment/ entrepreneurship
  • Ensuring access to basic education
  • Reducing the age of retirement
  • Avoid laziness
  • Being creative, positive and competitive
  • Being positive to stop unemployment.

With all this, there should be few policies implemented that improve economic growth .

  • Lower taxes
  • Avoiding investing in unsuitable programs
  • Avoiding favorite programs
  • Avoiding over-regulation of industries

Monetary policies:

The expansive monetary policy is one main solution which can help avoid unemployment. There should be expansive monetary policy from the Federal Reserve since it’s quick, effective, and powerful.

When there are lower interest rates as mentioned above, they allow individuals to borrow in a cheap manner to purchase a car, consumer goods, and more.

By this way, the interest rates allow the business to borrow money at lower rates which also offers them with capital to hire employees in order to meet rising demands.

These are a few aspects that need to be followed in cooperation with the people and government in order to solve unemployment. National Unemployment rate can be decreased from the nation when planned and implemented in the right manner.

Conclusion:

Natural unemployment is a major concern in any country and hence focusing on it is important in order to save the nation from economic decline.

As unemployment affects every individual in the nation, there needs to be proper economic conditions and maintenance by the government. The government should be prepared in order to take the right steps at times of recession which leads to unemployment. The unemployment solutions to the unemployment problem are also mentioned and hence unemployment is an aspect to be concentrated by all citizens of the country.

Unemployment is a major crisis and may bury the economic condition of the complete nation and hence be following the right procedure is mandatory. People who are unaware of unemployment and not sure about the inner details can run through these points and get benefited. Work towards developing a nation free from unemployment.

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E&C

36 Types, Causes, Effects & Solutions for Unemployment

“ When a great many people are unable to find work, unemployment results.”

Calvin Coolidge, Politician

Unemployment: Causes, Effects & Solutions

causes, effects and solutions regarding unemployment

Unemployment can be defined as the state where people are out of jobs due to a variety of reasons.

There are several different types of unemployment, including macroeconomic as well as individual factors.

Unemployment can cause severe negative effects, not only for individuals but also for the overall economy.

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In this article, the types, causes, effects and solutions for unemployment are shown in detail.

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Types of unemployment.

types of unemployment

Cyclical unemployment

Cyclical unemployment refers to a state where there are large swings in unemployment due to adverse economic conditions like recessions.

Although cyclical unemployment can have significant short-term effects on the local economy, in the long-term, the economy is likely to recover since cyclical unemployment often is just temporary.

Frictional unemployment

Frictional unemployment is the lack of employment due to factors like the search for a new job or due to the entering of the workforce of students after finishing college.

All this requires a certain amount of time, which implies temporary frictional unemployment.

Structural unemployment

Structural unemployment can be regarded as long-term unemployment due to a mismatch of demand and supply on the job market.

For instance, this could mean that unemployed people simply do not have the knowledge that is necessary to participate in the job market.

In our nowadays age, this could mean that people lack basic knowledge of how to use a computer, which makes it almost impossible to find an office job.

Regional unemployment

Another form of unemployment is regional unemployment.

It refers to a state where specific regions are structurally weak and just do not have many jobs to offer.

This may be due to unattractiveness for firms to open branches in those regions due to political instability or high corporate tax rates.

Thus, in those regions, unemployment rates are often quite high since there are simply not enough jobs.

Seasonal unemployment

Seasonal unemployment refers to unemployment that is due to seasonal factors.

For instance, some businesses make the majority of their sales in only a few months.

A good example is when companies supply goods for Christmas.

In the months before Christmas, sales usually skyrocket.

However, after Christmas, there are almost no sales at all.

Thus, especially in those kinds of businesses, seasonal unemployment is a big issue since companies simply do not need their workers anymore once the busy season is over.

Voluntary unemployment

There is also a fraction of people who actually do not want to work at all and want to enjoy their leisure time instead.

Those people contribute to the phenomenon that is often described as voluntary unemployment.

solve unemployment problem

Causes of Unemployment

Low level of education, mental issues, physical health problems, gender discrimination, homelessness, stroke of fate, financial crisis, structurally weak regions, lack of motivation.

A low level of education is a main cause of unemployment.

The better qualified people are, the easier it is to find a job since the demand for well-qualified people is quite high.

In contrast, when people lack proper education, these people are at great risk for unemployment since companies often do not want to employ them.

Depending on the level of competition and the macroeconomic outlook of the economy, a lack of education can lead to huge problems when it comes to finding a good job.

Mental health issues can also be a reason for unemployment.

People who suffer from mental problems will often have no motivation or also not the ability to apply for jobs in a proper manner.

Moreover, these people often have problems to focus, which makes it even harder since even if they find a job, they may have difficulties not to get fired since their quality of work may be quite poor due to these concentration problems.

Physical health issues may also contribute to an increased probability of unemployment.

Especially people who are suffering from disabilities may have it hard to find a job since companies often refrain from employing disabled people.

Additionally, if you suffer from other serious health issues like chronic diseases, companies may not want to employ you since they fear that you will often be sick and not a productive worker.

In some countries, there is still a huge gender gap between men and women.

Women are often not treated equally compared to men, which also translates into significantly worse job opportunities.

Moreover, in some cultures, women are meant to stay at home and take care of the kids instead of pursuing a career, which further increases the risk of unemployment since companies may not be willing to employ women in these regions.

Some people may also be victims of mobbing at work.

These people often see no other way out than to quit their job to escape bullying practices.

However, if these people do not have a good qualification, they might end up in long-term unemployment since they may not be able to find a new job.

If you are homeless, chances for getting a job are quite low since you do not have a permanent residential address, which in turn implies that the communication between you and potential employees may be quite hard.

Moreover, many companies refrain from employing homeless persons since they fear that these people will not be able to perform and the company may lose money due to mistakes.

People who previously worked in mentally demanding jobs but now suffering from burnout will also have it hard to find another job due to their mental issues.

Especially in our current society, burnout is quite a big issue.

Over the past few decades, people feel increasing pressure from their job, which often translate into mental issues.

People suffering from burnout may need plenty of time to recover before they have the mental ability to go back to work, which can result in significant unemployment.

If people who are closest to you die or if you suffer from other strokes of fate, you may not be able to deal with the situation in a mentally healthy manner and may suffer from mental conditions due to that.

In this case, you may no longer be able to work in your job since you may simply not be able to concentrate.

Thus, strokes of fate can also lead to unemployment, depending on the mental strengths of the individual person.

In case of a financial crisis like in 2008, many firms may have to terminate job contracts since the demand for their services or goods drops significantly and they will have to fire people in order to survive this period of economic distress.

Depending on the severity of the crisis, this can lead to a significant increase in unemployment rates.

There are also many regions which have a quite weak economic infrastructure, meaning that there are not enough firms to provide sufficient job opportunities for the local population.

This may be due to unattractive corporate tax levels or also due to political instability in some countries.

Therefore, in these structurally weak regions, there are simply not enough jobs and unemployment rates may be quite high due to that.

Some people may also just have not enough motivation to work at a job.

These people may enjoy watching TV or playing video games all day long instead of working.

This lack of motivation for work may be especially high for people who only have a low level of education and who would only be able to earn quite low wages, which makes it unattractive for them to work, especially if there is sufficient social security to cover their basic expenses.

solve unemployment problem

Effects of Unemployment

Mental health issues, physical health issues, lower life expectancy, social isolation, adverse effects on children, illegal activities, economic effects.

Unemployment can lead to severe mental health problems, especially for people who made their work their single purpose in life.

These people may often find themselves in a difficult mental state since they just basically lose their whole life once they become unemployed.

Some people may also feel not valuable when they have to stay at home instead of going to work, which may lead to mental issues like depression.

Since our body and our brain are complex systems and both are connected to each other, mental issues related to unemployment may also translate into physical health issues like headaches or more serious things like cardiovascular diseases. Sleeping problems related to stress may further increase the risk of serious health issues like heart attacks.

Unemployment may also lead to lower life expectancy .

Especially people who are unemployed for a quite long time may lose their will to live at one point since they often lack social contacts and do not feel like a valuable member of society anymore.

Moreover, physical and mental health issues related to unemployment may further reduce life expectancy for the respective persons.

Unemployment may also increase the chance of homelessness.

Especially in cities with high rents, people who become unemployed may struggle to keep their homes since they may no longer be able to pay their rent.

Once they lose their homes, these people may end up homeless if they do not have family members or friends who can help them out with accommodation.

Unemployment can also lead to substance addiction.

People who mentally suffer from unemployment a lot may try to fight their emotional issues by using substances of all sorts.

Even the use of legal drugs like alcohol may lead to serious issues once people become dependent on the substance.

Unemployment, especially long-term unemployment, may also lead to a significant level of poverty .

Since most people rely on their jobs in order to be able to pay their bills, once these people lose their jobs, they may no longer be able to afford the things for their daily life and may suffer from significant poverty.

Losing your job may also lead you into social isolation .

Since we spend so much time in our jobs, many connections and friendships result out of it.

However, if you are unemployed, chances are that the number of social interactions you have are quite limited, since many friends of yours may have to work and may not be able to spend time with you.

Children who come from families with unemployed parents often have a greater risk of unemployment themselves since parents often have a great influence on their children.

Imagine you grow up in a family where your mother and father are at home all day long and do not care about working.

Chances are that you might consider this behavior as normal and you may behave similarly to them once you turn into a grownup.

Unemployed people, especially those who also suffer from drug addiction, may be willing to engage in serious illegal activities in order to be able to satisfy their addiction since they feel that they do not have too much to lose and are willing to take the risk to go to jail.

Apart from the effects of unemployment on individuals, there are also significant adverse economic effects related to unemployment.

Economies lose large amounts of money since they have to financially support unemployed persons.

Moreover, they also lose significant levels of workforce, which further increases the financial burden related to unemployment.

solve unemployment problem

Solutions for Unemployment

Better education, motivation programs, programs against drug addiction and homelessness, fight discrimination, support programs for mental issues, subsidies for companies how are reintegrating unemployed persons, fiscal and monetary measures in a financial crisis situation, fight structural unemployment, create jobs.

In order to fight unemployment, it is crucial to improve education levels of people so that it will be easier for them to find a job.

This education should start early in school and teachers should pay close attention and take care of every child to ensure good educational progress.

Moreover, children from families that do not care about their education at all should be supported by community programs and financial aid so that these children also have a fair chance to increase their level of education and find a good job once they turn into adults.

Jobless people who are not willing to work at all have to be incentivized to get a job.

This could mean that their social security levels may be lowered if they do not take action to go back to work.

It could also mean that these people are forced into programs in which they get taught about the advantages of getting out of unemployment so they have a broader perspective on the chances of employment and might be more willing to search for a job.

Before homeless people and drug addicts are able to get and maintain a job, these people often need support from social workers or programs in order to find their way back into society.

These programs should show these people a future perspective so that they are willing to take the hard way out of addiction and homelessness and start a new life. By doing so, we will be able to bring part of these people back into occupations.

We should also try to fight all sorts of discrimination as a society.

This also includes gender inequality. In countries where women are still repressed and not seen as equally important as men, governments and celebrities should speak up and show the general public that women are as important as men and therefore job discrimination due to gender is not a senseful behavior.

By doing so, the job opportunities for women may improve since the acceptance towards them will be increased.

Since mental health issues often prevent people from having a job, it is crucial that these mental problems are treated appropriately so that we can reintegrate these people back into the workforce as soon as possible.

People who are working in jobs that are mentally demanding should also take care of themselves in order not to be at risk for burnout.

By taking these measures, individual unemployment can be reduced further.

Many companies also refrain from employing unemployed persons, especially if these persons suffer from long-term unemployment.

In this case, it might be senseful to provide financial incentives by governments for these firms if they are willing to reintegrate long-term unemployed persons into the workforce by offering them a job.

By doing so, these people may be able to get a job and therefore may be able to get out of unemployment.

In case unemployment is due to a financial crisis, central banks should take appropriate measures in order to get out of this crisis situation by applying fiscal or also monetary policy measures.

These measures could help to stabilize the global economy and may prevent a further downward slope which in turn would result in even higher unemployment.

Thus, in financial crisis situations, it is crucial that central banks take suitable measures in order to prevent high levels of unemployment.

Structural unemployment is hard to fight and will take a quite long time.

It can only be fought if governments take action for a better qualification of workers so that the incentive for companies increases to employ these workers.

It also has to be analyzed which kinds of workers are needed in the respective region so that they can be qualified accordingly and are able to get out of unemployment.

An intuitive measure to fight unemployment is to create jobs.

Jobs can be created in several different ways.

The creation of jobs often involves raising the incentive for companies to employ people and open branches in weak economic regions.

This can often be accomplished by giving firms financial incentives like tax advantages or other incentives to offer jobs for the local population.

Unemployment can be a serious problem, especially in structurally weak geographic regions where firms do not have proper incentives to open branches.

There are several different kinds of unemployment.

Some people simply do not want to work, others urgently search for a job but are not able to get one.

In order to be able to fight high levels of unemployment, governments have to take suitable measures.

This could mean giving firms the incentive to employ more people or also to provide better education for the general public so that unemployment decreases naturally.

By doing so, more people can get back into work and the overall quality of life for people is likely to increase.

https://en.wikipedia.org/wiki/Unemployment

https://journals.sagepub.com/doi/abs/10.1177/002795018511100106?journalCode=nera

https://mpra.ub.uni-muenchen.de/79210/1/MPRA_paper_79210.pdf

solve unemployment problem

About the author

My name is Andreas and my mission is to educate people of all ages about our environmental problems and how everyone can make a contribution to mitigate these issues.

As I went to university and got my Master’s degree in Economics, I did plenty of research in the field of Development Economics.

After finishing university, I traveled around the world. From this time on, I wanted to make a contribution to ensure a livable future for the next generations in every part of our beautiful planet.

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Top 6 Strategies to Reduce Unemployment

solve unemployment problem

Here we detail about the six employment strategies used to reduce employment.

Strategy 1# Use of Labour-intensive Technology:

Both the organised and un-organised sectors must adopt labour-intensive technology if sufficient employment opportunities are to be generated in both the rural and urban sectors of the economy.

The decline in employment elasticity of output growth is primarily due to the increasing trend in capital intensity in the organised industrial sector as well as in agriculture.

Increasing mechanization of agriculture in various states has lowered the employment elasticity of growth of agricultural output. Therefore, for raising labour intensity, suitable monetary and fiscal measures need to be adopted to discourage the use of capital-intensive techniques.

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Of course, the use of labour-intensive techniques with lower productivity of workers in the industry and agriculture may lower the growth of output. Thus, there might be same trade off between employment and growth of output. In our view due to the seriousness of unemployment problem some output growth should be sacrificed for the sake of more employment.

Strategy 2# Accelerating Investment in Agriculture:

Second, an important reason for slow growth of employment in agriculture and rural sector has also been a shortfall in investment or capital formation in agriculture. Both the public and private sector investment in agriculture has declined since the early nineties. Of special importance from the viewpoint of employment generation is investment in irrigation, rural roads, flood control projects, power generation and other infrastructure.

It is worth noting that investment not only generates employment directly but also has a multiplier effect which operates through backward and forward linkages. Therefore, UPA government’s Common Minimum Programme (CMP) which provides for stepping up of investment in agriculture and rural infrastructures is a greatly welcome step for employment generation.

The announcement by the government to furnish more credit to farmers at lower than market rates of interest from commercial banks will also ensure that the small and medium farmers will be able to buy fertilizers, other high-yielding inputs, and arrange for their irrigation.

This will raise their productivity and tend to reduce under­employment and disguised unemployment. Despite more than five decades of planned industrial development, agriculture continues to be principal source of employment in the Indian economy. Though the share of GDP from agriculture has come down to around 22 per cent, still about 58 per cent of labour force continues to be employed in agriculture. In fact, agriculture continues to be the parking lot of the unemployed in the country.

But a good number of persons engaged in agriculture and related activities are not productively employment. In fact there is widespread under-employment and disguised unemployed. Economic reforms initiated in 1991 have by and large neglected agriculture which even now does not get enough credit from commercial banks.

No wonder that there has been a fall in investment or capital formation in agriculture both by the private and public sectors. This is an important reason why employment opportunities in agriculture have not risen much causing increase in rural unemployment. Now, UPI (United Progressive Alliance) government with Dr. Manmohan Singh as Prime Minister, has set before itself the task of making substantial investment in agriculture so as to generate enough employment opportunities in this sector.

Strategy 3# Diversification of Agriculture:

Besides there is urgent need for diversification of agriculture. For example, there is an urgent need for a relative shift from growing of crops to horticulture, vegetable production, floriculture, animal husbandry, fisheries etc. which are more labour absorbing and higher income-yielding. In addition to this, promotion of agro-processing industries for export purposes has a large employment potential.

For the rapid growth of employment opportunities in agriculture and related sectors and agro-processing industries, investment in infrastructure including irrigation, rural reads, power supply, and development of agricultural markets are required.

Strategy 4# Labour-Intensive Industrial Growth:

For solving unemployment problem in the urban areas, the organised industrial sector must also absorb a sufficient number of workers. The failure of the organised industrial sector to generate enough employment opportunities is due to the use of capital-intensive technologies imported from abroad.

The tendency to use the higher capital-intensive technology by the Indian industries in the post reform period has been intensified because they are trying to improve competitiveness to face competition from imported commodities.

The other factor responsible for the use of higher capital intensive technologies is the factor-price distortions such as cheap capital and relatively higher wages of workers who have strong labour unions. Capital has become relatively cheap due to various fiscal concessions such as liberal depreciation and investment allowance and low interest rates on borrowed funds for investment. Consequent to the use of high capital-intensive technologies in our industries the labour productivity has been increasing while employment has been growing at a snail pace.

Therefore, to encourage the use of relatively more labour-intensive technologies and thereby to generate more employment opportunities, fiscal and monetary concessions mentioned above on use of capital must be withdrawn. In this case there is bound to be some loss of workers’ productivity. Therefore, this will involve some trade-off between employment and output. In our view, because unemployment problem is very serious and greatly hurts people’s welfare, some growth of output is worth sacrificing for more employment opportunities.

Strategy 5# Services and Employment Growth:

The growth of services in India has a large employment potential. In 1993-94 to 1999-2000, next to the construction sector the employment elasticity of output growth in services was higher and was estimated at about 0.50. Of special mention are software services and BPO (Business Processing Outsourcing) which have a lot of employment potential, especially for the educated youth of the country.

The other services such as finance, insurance, trade, hotels, and restaurants have also a lot of employment potential. But an important thing to note is that growth of these services is dependent on industrial and agricultural growth in the economy.

Strategy 6# Education, Health and Employment Generation:

Lastly, the expansion of education and health care not only promotes accumulation of human capital and thereby contributes to growth of output, it will also generate a good deal of employment opportunities. More schools, hospitals, health care clinics in the rural and urban areas will not only create employment during their construction but also, and more important, when they start working to provide education and health services. Their working provides employment to both the educated and unskilled persons. Therefore, a higher allocation of resources is required to be made for them in government budgets and in our future plans.

Related Articles:

  • Suggestions to Solve Unemployment Problem
  • Top 6 Causes of Unemployment in India
  • Main Causes of Unemployment in India
  • Top 2 Alternative Strategies to Reduce Inflation (With Diagram)

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China’s youth unemployment problem has become a crisis we can no longer ignore

solve unemployment problem

Senior Lecturer, Te Herenga Waka — Victoria University of Wellington

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Christian Yao does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.

Te Herenga Waka — Victoria University of Wellington provides funding as a member of The Conversation NZ.

Te Herenga Waka—Victoria University of Wellington provides funding as a member of The Conversation AU.

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Youth unemployment is a global problem, but in China the rate - 21.3% - is particularly alarming, not just because it’s high, but because it could affect other economies and geopolitical relations.

The release of the rate, which more than doubled the pre-COVID rate of May 2018, coincided with China’s National Bureau of Statistics announcing it would no longer report age specific data because it needed to “ improve and optimise labour force survey statistics ”.

Youth unemployment is a complex issue, but even more so in China as a result of government policy and society’s expectations.

Under the Hukou system, households in China are required to register, and authorities then determine where they live and work and which public services they can access.

The system often stops rural residents taking advantage of urban opportunities, which can limit their work prospects.

The stress and uncertainty experienced by this demographic is only worsened by the expectations that come with being the only child in the family as a result of China’s one child policy, which was abandoned only seven years ago.

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The “Ant Tribe” phenomenon

The term “Ant Tribe” was coined in 2009 by sociologist Lian Si to describe highly educated young people stuck in low-paying, temporary jobs that hinder skill advancement.

These young people can’t accumulate social capital, leading to a negative cycle that’s hard to escape. This diminishes their return on their investment in education and highlights a breakdown in the career ecosystem.

The “Ant Tribe” phenomenon is more than just a sign of a flawed economy. It also reveals a deeper emotional and psychological issue. Being over educated and underemployed causes significant emotional trauma , including anxiety, depression and hopelessness.

This emotional toll is further complicated by societal shifts such as the “ lying flat ” movement and the rise of “ full time children ” in China.

These trends challenge traditional markers of success and redefine family expectations, adding another layer to the psychological complexities faced by the younger generation. The impact can be long-lasting, leading to a less productive and innovative workforce .

Weaknesses in the education system

Despite rapid expansion in higher education, a disconnect exists between university curricula and job market needs.

Programs often favour theory over practical skills, leaving graduates ill-equipped for work. For example, engineering students might focus on equations and theories but miss out on real-world applications such as internships.

Chinese students in a classroom taking notes

Additionally, the market faces a glut of overqualified candidates, especially in the technology, finance and healthcare sectors. This imbalance drives many towards further studies.

In 2023, a total of 4.74 million students took the postgraduate entrance exam, a staggering 135% increase on the 2.01 million test takers in 2017. This cycle exacerbates youth unemployment and underemployment.

The wider impact

The ripple effect of China’s youth unemployment crisis is not to be underestimated. Drawing on warnings from UNICEF , high unemployment rates can lead to civil unrest , especially in nations with a large youth population.

The Chinese Communist Party has long maintained its authoritarian approach by securing a social licence based on economic stability and prosperity.

If rising youth unemployment erodes this licence by fostering political disengagement or radicalisation, China could experience a significant internal power shift .

In a globally connected world, such turmoil could spill over into international relations. Civic unrest can make a country less stable and thus less attractive to foreign investment , especially among nations with close economic ties to China.

Read more: Inside the world's largest higher education boom

Such an internal upheaval also threatens to destabilise supply chains globally, given China’s pivotal role in global supply chains .

Historical examples such as the Arab Spring and Brexit show internal dissatisfaction and social unrest can have ripple effects on a country’s international relations.

The Arab Spring led to the overthrow of multiple governments, created regional instability, influenced global oil prices, and necessitated the resetting of foreign policy by Western countries.

Large group of people carrying placards protesting against Brexit

Similarly, Brexit impacted global trade agreements, led to political realignment, and caused the European Union to reconsider its future direction , affecting its collective foreign policy.

While youth unemployment is a global dilemma, the extent of the problem in China and its potential broader impact on interconnected economies means we can’t afford to ignore it.

What can China do to solve the problem?

China can find policy inspiration from successful initiatives in other countries, such as Germany’s dual vocational training system . This system ensures students are both academically prepared and practically skilled, better aligning education with labour market demands.

Addressing the urban/rural divide is equally crucial. By offering financial incentives including tax breaks and grants, China could promote job growth in rural areas. Australia and the United States have adopted similar models to attract healthcare workers to less populated regions .

China also needs to do something to reduce the emotional toll of chronic unemployment which worsens the longer graduates are out of work. Post-COVID, the issue is exacerbated, with 40% of Chinese youth reported to be susceptible to mental health challenges.

This is where mental health services such as those available in Australia that are tailored to young people could help. Besides benefiting the individual, these programs contribute to a more engaged, productive workforce essential for national well being.

Read more: Young, educated and underemployed: are we building a nation of PhD baristas?

The precarious nature of the gig economy can further deepen the unemployment crisis. Some European countries such as France and the Netherlands consider gig workers employees and offer social security benefits. A similar model could be implemented in China, providing benefits such as health insurance and retirement plans.

Finally, the scale and complexity of youth unemployment requires a multi-pronged approach that extends beyond national borders.

Countries should actively share successful employment strategies and cooperate on international initiatives to create job opportunities for youth. Collaboration is the key to developing a globally stable, productive young workforce.

Investing in young people isn’t just good policy. It’s a moral imperative for global stability and shared prosperity.

  • Youth unemployment
  • China Economy

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