For the past decade, unemployment rates have been skyrocketing and college graduates looking at joining the workforce have become decidedly more discouraged. According to an article published by NBC News entitled "Fed projects high unemployment into 2015," the Fed has predicted that for the next two years unemployment will remain above 6.5%. This suggests that monetary policy will also continue to dictate extremely low interest rates for the foreseeable future. As we discussed in class, an important tactic for fixing unemployment can be raising interest rates. This will in turn raise investment in the country and encourage businesses to hire more people, effectively lowering the unemployment rate.
We also discussed the idea the while monetary policy can help reduce unemployment in the short run, it will not necessarily fix it for the long run. It is possible that the unemployment rate will even out at its own equilibrium, however that equilibrium may be too high. In the article entitled "Unemployment Rate Ticks Up to7.9 Percent," published by US News, it is suggested that while job production is growing, it is very slow and steady. Meanwhile, the unemployment rate continues to grow.
In relation to the unemployment rate is the welfare system. Through the past decade this program has been growing, especially due to the growing number of citizens claiming unemployment. On March 19, 2013, an article published in the Wall Street Journal entitled "Why Are States Cutting Unemployment Benefits," it is shown that those programs may now be shrinking once again. The reason lies in the amount of debt accrued by the state due to the unemployment programs. Instead of increasing taxes on employers to pay off this debt which some groups say could deter hiring, the states are cutting back on benefits. Is this system of unemployment sustainable?
Interesting post. Two quick remarks: technically, the US unemployment rate has been going down for a while, not growing (see http://bit.ly/Y76UWI). And raising interest rates is not necessarily a (direct) strategy to reduce unemployment, since raising interest rates will encourage saving, not investments.
ReplyDeleteAs Keynes' would say unemployment stabilization would be set at a higher level due to the high inflation. As inflation increases in an unstable economy unemployment has seem to follow the inflation road and therefore increase. In fact of the US I believe that a lower interest rate is indeed a good but not permanent solution to decrease unemployment, it would raise the amount of loans being taken and increase the probability of s-corporation to be born.
ReplyDeleteVery well written. As for your final question, I think the unemployment is sustainable though not desirable. You can't make major changes overnight without disturbing the publics interests. Dealing with a higher unemployment is still a better trade off in the FED's eyes.
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