Unemployment & Underemployment Research Paper Starter

Unemployment & Underemployment

(Research Starters)

Unemployment comes in several forms and affects millions of people at any given time. People can find themselves out of a job because the economy is in a downturn. Or they could be in the unenviable position of working in a dying industry. The luckier ones are simply transitioning from one job to another by choice. For most people, though, unemployment is a stressful personal experience. And though economists agree that steps should be taken to keep unemployment low for the wellbeing of the economy as a whole, they disagree on how best to do this.

Keywords Aggregate Demand; Aggregate Supply; Coping; Demand-Deficient Unemployment; Equilibrium; Frictional Unemployment; Full Employment; Involuntary Unemployment; Keynesian Economics; Monetarism; Non-Accelerating Inflation Rate of Unemployment (NAIRU); Phillips Curve; Structural Unemployment; Underemployment; Utility-Maximizing Behavior



Demand-deficient, Structural

Very few of us can afford to be unemployed for very long. The unpaid bills keep mounting; the depression, stress, and social isolation grow ever more wearing. The economy as a whole cannot remain stable if large numbers of jobless workers are unable to purchase the consumer goods and services that account for two-thirds of U.S. economic output. Unsold inventories pile up, profit-driven businesses cut back on production, and more people lose their jobs or find themselves with reduced hours. Economists call this chain of events demand-deficient unemployment, and, because its roots lie in the natural expansion and contraction of the business cycle, it is expected to happen periodically. Sometimes, though, it is precipitated by a major economic shock: a credit crunch or sudden steep rise in oil prices, etc. Then, the downturns are more severe, and the accompanying unemployment more extensive and drawn out.

As bad as this can get, it is not nearly as pernicious as what is known as structural unemployment. Here, goods and services simply fall out of favor and are replaced by product substitutes; or, thanks to automation, they are made faster and cheaper by fewer workers. Whole industries disappear, are utterly transformed, or else moved offshore never to return. The prospects for those summarily cast aside are far from promising. Unless they have skills other industries need or are willing to retrain, these displaced workers will earn a fraction of what they once did. The lucky ones will be hired full time as unskilled labor; the rest will collect government benefits, and will perhaps supplement these with off-the-books work or else join the ranks of the underemployed who make ends meet working only part time.

Even in the very best of times, the economy never quite attains the full employment to which it aspires. In theory, every available worker can hold a permanent, well-paying job suited to his or her capabilities and skills level. Subject to millions upon millions of individual decisions each day, however, the real-world economy is actually too dynamic for this to happen. There is always somebody between jobs: young adults and women entering the workforce for the first time, experienced workers re-entering it after retraining or raising a family, and those eager to secure a better position. Information about job openings must be ferreted out, application forms filled in and processed, interviews conducted — all of which takes time. So, even in economic boom times, there is going to be some amount of what economists call frictional unemployment.


There will likely also be what economists refer to as underemployment. Here it is not a question of not having a job, but rather of having a job for which one is overqualified. Experts estimate that as much as 25 percent of the workforce may fall into this category. Fully two-thirds of all temporary workers and one-third of all part-time ones have no other recourse because they cannot find more substantial employment. At least one-fifth of all graduating college students find themselves in similar straits. If you only work intermittently for twenty hours a week or less and get at best only 80 percent of the wages from your previous job, you too may be "underemployed" (Feldman, 1996).

Unemployment is not nearly as straightforward as the monthly jobless rate reported by the government might suggest. As a telling economic indicator, it only counts those out of work actively seeking employment; it excludes those who have given up looking altogether or who are underemployed. Still, the official number covers the job losses amongst the nation's more productive workers, the ones who earned and presumably spent the most in wages. This involuntary unemployment is thus the most problematic. Between the years 1972 and 1992, between 4.6 percent and 9.1 percent of the U.S. labor force found themselves in precisely this predicament. But their plight was probably not as bad as between 3.8 percent and 5.8 percent of American workers so disheartened by their prospects that they had stopped looking all together. More fortunate, perhaps, were the estimated 10.8 percent to 15.4 percent of American "underemployed" workers who could only work part-time or at low pay, unskilled full-time work (Sheak, 1995).

Nor is unemployment an equally shared burden. How much rates vary by age, gender, race, and educational attainment is clearly documented in data gathered by the U.S. Bureau of Labor Statistics. In 2013, for example, the seasonally adjusted unemployment rate for 20- to 24-year-olds ran to around 13 percent, twice as much as the rate of between 6 and 7 percent for 25- to 54-year-olds. An even lower rate of just over 5 percent was reported among workers 55 and over. The aggregate unemployment rate for the year was around 7.5 percent. At 7.7 percent, the unemployment rate for men overall was higher than the roughly 7.0 percent rate for women overall.

Rates varied even more by race. Among whites, the rate ran to 6.6 percent; among African Americans it ran to 13.7 percent, over twice as high. At up to 9.4 percent, the rate for Hispanics or Latinos, meanwhile, fell in between. Education-wise, up to 11.3 percent of high school dropouts seeking work were unemployed as opposed to 7.6 percent of high school graduates. A rate of as high as 6.4 percent among college attendees suggests they had an easier time finding work, though not as easy a time as college graduates, whose rate of unemployment ran to only 3.9 percent (U.S. Bureau of Labor Statistics, 2013).

Further Insights

In all, anywhere between 20.2% and 30.1% of the U.S. labor force between 1972 and 1992 had firsthand experience of under- or unemployment, a set of aggregate numbers so high as to raise a disturbing question: why can't society as it is presently constituted do more to bring about "full employment"? Perhaps this a question better left to economics, not sociology. However, although the more germane discipline from a technical standpoint, economics has as its focal point the efficient allocation of resources. Unemployment in this respect is just one of several by-products of this constant process of adjustment about which economists theorize. Its impact on individuals, communities, and society in general matter less than its impact on markets. The so-called immutable laws of economics are no more than conceptual models of imponderably complex real-world events we choose to believe in. As a socially mediated set of mental constructs, economic theory is amenable to sociological analysis.

Keynesianism: The Macroeconomics of Unemployment

People have gone without adequate work for many centuries, but the economic theory explaining unemployment didn't really come into its own until the twentieth century, upon the publication of John Maynard Keynes's The General Theory of Employment, Interest and Money in 1936. Keynes broadened the scope of orthodox economic analysis by framing the problem of production and employment in the larger context of national economies. Myopically examining the behavior of households, firms, and markets in isolation, he argued, ignored the much greater influence exerted by aggregate supply and aggregate demand. Of the two, he argued, aggregate demand was the more crucial. If supply did create demand as was widely supposed, no one would be jobless when, in fact, many were at the time.

In Keynesian economics, aggregate supply is the sum of all the goods and services businesses bring to the marketplace with the expectation that the proceeds will more than justify hiring the required labor. Aggregate demand, conversely, is the level of output of goods and services consumers purchase with the wages earned producing them. Aggregate demand matters more, since we typically must first earn (or borrow) the money to purchase what businesses sell. It is not only a question of how much we earn today but tomorrow as well. If consumers and businesses expect harder economic times ahead, Keynes warned, they take the precaution of cutting back spending. The mere...

(The entire section is 3974 words.)