Academic journal article Economics, Management and Financial Markets

The Problem of Unemployment

Academic journal article Economics, Management and Financial Markets

The Problem of Unemployment

Article excerpt

ABSTRACT. The aim of this paper is to address the problem of unemployment. Economists generally agree that a zero rate of unemployment is not only unattainable but also undesirable within capitalism. This is problematic because, as it will be shown, unemployment has adverse effects on both individuals and societies. Assuming that the primary aim of economics is to improve people's lives, it behooves us to find a solution to the problem of unemployment. Two solutions will be offered. The first works within the confines of the capitalist system - it requires instituting welfare policies that alleviate the adverse effects of unemployment. The second involves a paradigm change - it requires replacing capitalism with an alternative economic system that is consistent with a zero rate of unemployment.

JEL Classification: E24, J21, J64, M51, Q52

Keywords: unemployment, capitalism, class antagonism, health care, economic democracy, anarchism

1. Introduction

Economics shapes our world; it is what drives it to move forward. Its primary aim is to improve people's lives. As Varían aptly stated, "Keynes was only half joking when he said that economists should be more like dentists. Dentists claim that they can make peoples' lives better; so do economists" (2000: 353). Until the late nineteenth century, the preferred term for economics was 'Political Economy' signifying its interdependence with the political and moral spheres. By the end of the twentieth century, in the quest for objectivity and universality, economists began treating economics as a "hard" science, gradually isolating it from the political and moral spheres. Contemporary economists continue this trend. Even though the economy is "a subsystem of a finite biosphere that supports", they treat it as existing "in a void", thereby ignoring its profound relation of interdependence with the environment that sustains it (Daly 2005: 100).

The aim of this paper is to address the problem of unemployment. Economists generally agree that a zero rate of unemployment is not only unattainable but also undesirable within capitalism.1 This is problematic because, as it will be shown, unemployment has adverse effects on both individuals and societies. Assuming that the primary aim of economics is to improve people's lives, it behooves us to find a solution to the problem of unemployment. Two solutions will be offered. The first works within the confines of the capitalist system - it requires instituting welfare policies that alleviate the adverse effects of unemployment. The second involves a paradigm change - it requires replacing capitalism with an alternative economic system that is consistent with a zero rate of unemployment.

2. Unemployment within Capitalism

Economists2 generally agree that a zero rate of unemployment is not only unattainable but also undesirable within capitalism. The unemployment rate is the number of unemployed individuals over the labor force multiplied by a hundred. Capitalism distinguishes between three types of unemployment: cyclical, structural, and frictional. Cyclical unemployment corresponds to business cycles - it typically results from recessions. Business cycles are considered to be a necessary evil of capitalism because they purport to allow markets to self-adjust (Schumpeter 1976). Structural unemployment occurs when the jobs that are available do not match with the skill sets of the unemployed workers - it typically results from international competition or technological changes. It is viewed as a positive occurrence because it purports to promote technological advancement. Frictional unemployment corresponds to the turnover of labor - it typically results either from job loss or increases in the number of people entering the workforce. It is also viewed as a positive occurrence because it purports to be conducive to mobility.

Economists believe that there is an inverse relation between inflation and, what is known as, the 'natural' rate of unemployment,3 which is set by (unregulated) markets in accordance with the law of supply and demand. …

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