In Search of a General Model of Unemployment

Article excerpt

EXECUTIVE SUMMARY

This study has identified macroeconomic variables with combined significant effects on unemployment movements, and explained the nature of these movements as an aid to policy makers and economists in the forecasting process. A step-wise multiple regression analysis indicated that variables of GDP, discount rate, budget deficit, inflation, and hourly wage contributed significantly to unemployment.

Key Word: Unemployment Theory

INTRODUCTION

All economies confront, at least, two major and opposing economic problems: economic expansion, whose persistence will lead to inflation, and economic contraction, leading to recession, high unemployment and economic stagnation. While some economists believe that inflation is the worst economic evil, (granted that inflation erodes the purchasing power, and creates uncertainly in investment decisions), however, unlike unemployment, inflation, (excluding hyper inflation) is not the impetus for sociopolitical problems, such as violent crimes, family disunity, indignation of human spirit, and political uprising. Inflation seems to be more under the public's control, but unemployment or recession is not. Unemployment is the cause of poverty and income dispersion, but inflation is not.

The Great American Depression of 1929-1934 left millions unemployed. Starvation, crime, and social deterioration followed in its wake and decimated much of our culture. At some points, unemployment has left families defenseless and at the mercy of the federal government's social programs. High unemployment during the early 80s swelled the welfare roles. Lack of jobs has caused deterioration of quality of life for many communities and the migration of families to different geographic areas. Likewise, it has both imparted the politicians and thus the course of our political culture (Kooros and Halpet, 2000, p. 143).

During the inflationary cycle a dichotomous consumer behavior is observed: one, to restrain consumption expenditures in retaliation to inflation, with the hope that the future prices will plummet to a reasonable level. The other, is to accelerate speculative purchases to wedge against consistent future price hikes. High levels of unemployment have been observed frequently in the American economic scene, with ultimate hardship to the American labor force. Although political economic cycles refer to the use of economic stimuli by the government before elections, some economists, utilizing the historical data of economic cycles, are of the opinion that the great economic ills, including cyclical unemployment and other macroeconomic variable have been attributed to Republican presidencies, with the exception of President Carter's. His stagflation, and destruction of a strong democratic pro-western modem Iran, (which also protected the Straights of Hurmoz for the safe passage of oil, which the United State now pays $ 49. I billion annually), again ill-advised by the British, replaced by the Moslem fanatics in 1979, are the hallmark of his presidency. The Republican presidency has also been accused of having weak national economic policies and international political policies, except in utilizing the U.S. strong military force especially against those countries that provide 50 percent of the 20 million daily barrels of oil, (MBPDs) for US oil consumption, i. e. 40 percent of the world oil production, for a nation which comprises of 5 percent of the world's population, (Badeaux and Kooros, 2005). The Republicans attribute the economic downturn as a carry over of the previous administration. If true, George Bush, Sr., antecedent to President Reagan, seems to refute this claim as during his presidency the economy experienced a recession. In general, during the Republican presidencies, the economy has faced high unemployment/recession; budget deficit; high interest rates, etc. (See Appendix A).

Beyond the cyclical unemployment phenomenon, many scholars have devoted much of their research and writings to the study of unemployment as a major force in domestic and international economic policies. …