Question

1a. How can the advancement of technology create a higher standard of living and economic growth, but simultaneously have an upward influence on the unemployment rate? What are two reasons why changes in technology can unintentionally create a negative cycle for people trying to find employment? Is this type of unemployment a concern to society? Is all unemployment a concern to society? Explain.

1.b How can Net job creation (newly created jobs minus the total number of lost jobs) sometimes lower the Unemployment Rate, sometimes leave it unchanged, and sometimes increase it? Explain what must be happening for each of these outcomes to occur. Define what the Unemployment Rate measures in your explanation.  

1c. Does this make the Unemployment Rate a good “check engine light” to indicate that an economy is not operating at full capacity? What are the two ways politically to lower the Unemployment Rate? How does this potential skew the public perception of this measurement, and influence your previous answer?

Answer 1

1a. Technology creates a higher standard of living by reducing production costs, thus bringing prices down.

Secondly, it also increases the quality of goods and services available at the same cost.

It increases the unemployment rate by making many jobs redundant through automation.

Changes in technology inevitably means substitution of human labour with machines & equipments.

In a sense, people compete against automation tools for jobs and face difficulties in finding employment.

This type of unemployment is a concern to society since it is an adverse effect of the advent of technology.

Not all unemployment is a concern. As per Phillips Law, unemployment and inflation are negatively correlated.

If unemployment decreases and more people have jobs, they have more purchasing power from incomes.

This drives inflation up. So. it is necessary to keep a certain inflation rate (say, 2% - 3%).

1b. Net Job creation (NJC) is one of the factors in unemployment. The other is the number of new job aspirants.

If this is higher than the NJC, unemployment will increase and if it is lower, unemployment will decrease.

1c. Yes the unemployment rate is a good indicator of the economic health. To alter it politically, the 2 ways are

a) Government employment guarantee schemes, which offer jobs to all those who seek

b) Pension or unemployment benefit plans, which ensure that people do not have to worry about incomes

and hence, reduce the number of job seekers