Macro--economic Essay Example | Topics and Well Written Essays - 1500 words

Macro--economic - Essay Example Conclusion VII. References. What is wrong with America’s labor market? I. Introduction This excerpt is from The Economist magazine. It considers the fall in the American economy with specific concern to the labor market. The Issue in concern discusses the reason behind the fall in labor market, whether the problem lies at the demand side or the supply side along with pros and cons for active job policy. Part (a) – Article Summary The article talks about persistent unemployment rate in America’s market. The models and theories used in this article are: 1. Different types of Unemployment 2. Economics factors of production 3. Economic Growth Model 4. Demand and Supply Theories 5. Keynes Theory of Income and Employment 6. Modern Macroeconomists view 7. Okun’s Law II. Why is the labor market weak? America has faced recession at June 2009 (NBER, 2009). After the recession in recovery USA has seen 2.8% annualized growth, this was of course real low therefore it c annot have assured a significant change in unemployment rate thereafter. This is slightly in accordance with the Okun’s Law, which says, â€Å"that for every 1% rise in the unemployment percentage there is approximate 2% fall in the potential Gross Domestic Product.† Though the exact accuracy of the law is yet under disputation, however it stills empirically recognizes the relationship between unemployment and country’s production. With only 2.8% real growth in the current recovery session, it is not at all surprising that job growth has been an issue. The resultant unemployment is due to cyclical variation therefore we could term it as cyclical unemployment - unemployment caused by business cycle recession. The current slight decrease in jobless rate of 0.1% is misleading; the growth rate could not be measure inconsiderate to other negative factors (the discouraged workers drop out). There are around 46% of jobless workers preferring to remain unemployed. This is because of the inability to find the works that satisfy their needs. The weakness in the production cycle has to be mostly blame but there are signs of an emerging disease in American called structural unemployment. Structural unemployment results from persistent mismatch between the features and skills of workers and the job demands or requirement. It last longer periods compared to the frictional unemployment, as worker would require time to learn new skills. The youth unemployment (frictional unemployment) is worse factor of the America’s weak labor market. America has a lesser fraction of prime age men in workplaces and in the labor force than any other in the G7 economy. Some 25% of men 25-54 years old with no college certifications, 35% of high school dropouts and approximately 70% of black high school dropouts are not working (Economist 2011 under Jobs for the future). In addition, this frictional unemployment arises from process of matching workers with job. Fricti onal unemployment might be good as the workers take time matching the job they are wishing to do. However, if the unemployment period is long then it is not beneficial for the economy, as short-term unemployment becomes long term. This is almost what is happening in