Question

Discuss the United States unemployment situation since 2001. How is it calculated and how do economic situations affect the number over time? The country is experiencing the lowest unemployment rate in a long time. What are the trends of components that make up the rate in its calculation? Is the country truly better off now? Feel free to insert graphics in your answers to support your conclusions.

Answer 1

United States unemployment situation since 2001 :

A lot has happened since 2001 in terms of unemployment situation in US. In 2001, unemployment rate rose to 5.4 percent in October from 4.9 percent in September. Employers cut 415,000 jobs - the biggest number since 460,000 in May 1980. The main reason announced was the 9/11 attacks and Bush tax cuts. After 2001, the unemployment rate continued to be around 5% owing to reasons such as expansions, war on terror and Bankruptcy abuse prevention act. But in the year 2008, thanks to the FInancial Crises, the rate went upto 7.3%. In 2010, it went upto 10% because of the Jobless Benefits extensions. In the following years it started to drop and reached a new low of 3.7%.

How it is calculated:

A person is defined unemployed in US if a person is jobless, but has looked for the job in the past four weeks and are available for work.

Unemployment rate is measured as number of persons unemployed divided by the civilian labor force.

How do economic situations affect the number:

In 2008, when the unemployment rate started to increase i.e reached 7.3% it owed this situation to the economic crises. Due to this crises, unemployment benefits extension was launched in 2009 to 2013 in order to to help the 13.1 million people suffering from the 8.5 percent unemployment rate. In the initial years of recovery from a crises, not only did the unemployment rate increases but  but the number of new jobs created in the economy actually declined. This is due to companies tendency to increase their employees’ work hours; second, many upgraded their equipment and boosted their productivity, thereby reducing their need for workers.

In 2003, the unemployment rate started to decline due to Jobs and Growth Tax Relief Reconciliation Act which encouraged investment in the stock market by decreasing capital gains and dividend taxes.

Another example : Fiscal policy - The Federal government has reduced its budget deficit significantly since the 2007–2009 recession, which resulted from a combination of improving economic conditions. Reducing the budget deficit means the government is doing less to support employment, other things equal.

Lowest unemployment rate :

USA reached a new low of 3.7% in 2018. It reached at this level owing to a series of events and policies over the number of years. In 2012, Government adopted Quantitative Easing, used to stimulate the economy by making it easier for businesses to borrow money. In 2015, the unemployment level was at 5% which was meant as the natural rate of unemployment. In 2017, the Dollar weakening led to decrease in the rate. Trump Tax plan in 2018 brought the corporate tax from 35% to 21%.

Truly better of now:

While one might say that this unemployment rate is more evidence of a booming United States economy and a strong labor market. But there is weak spot to it too, according to this rate, one would see more people in their prime working years (25-54), certainly thats not the case. The employment-to-population ratio for this group is conspicuously feeble. In September, only 79.3% of working-age Americans had jobs. That’s a smaller share than the final months of the last cycle, which ended in 2007 and early 2000s.

Part of the problem is that many of them have given up looking for work. To compare to percentage, the share during the great recession was 83% and in 2000, 84% of the population were in their prime working years.

Conclusion : According to the rate i.e 3.7%, the cream of America’s working crop should have no trouble finding work and commanding higher wages but instead it still has more growing left to do to pull all the people in need of work back into the labor force.