Unemployment can be a major social problem. In early 2019 the unemployment rate in Bosnia was 34%.
By comparison, in 1933, the worst year of the great depression, the unemployment rate in the United States was 24.75%.
Unemployment increases when the amount of work that needs to be done in an economy decreases. Businesses notice this first when they get fewer orders for goods and services. When firms have less work to do, they need fewer workers, and they typically layoff some of their employees. However, firing workers is not the only option; a firm could just trim everyoneâ€™s hours instead.
For example, imagine a firm needs 20% fewer labor hours because a recession has decreased the demand for their product. The firm could achieve this 20% reduction by laying off 20% of its workforce, or it could achieve this by keeping everyone employed, but reducing everyoneâ€™s hours by 20%.
From the business ownersâ€™ perspective, one point in favor of the â€œterminating jobsâ€ approach is that, although recessions are bad for business, when businesses trim their work force, typically the least productive workers get laid off first, and often firms emerge from recessions stronger for having shed workers who shirk their duties. Even today, following the recession of 2008, unemployment remains high but much of Corporate America is as profitable as ever.
From the employeesâ€™ perspective, there are some tradeoffs here. If the employer lays off 20% of the workers, those who remain may feel insecure about the stability of their job, although they maintain their full pay. On the other hand, if the employer doesnâ€™t lay anyone off, and instead cuts everyoneâ€™s hours by 20%, all employees remain employed, but earn less money.
- Which type of firm would you rather work for?One who lays people off, or one that cuts everyoneâ€™s hours?Why?Think about the tradeoffs involved.Please use marginal analysis (ref. chapter 1) in your reasoning, and back up any claims you make with some documentation.
- If a law was passed that required all firms to cut hours instead of lay people off, so that everybody was guaranteed a job and only hours worked fluctuated (instead of experiencing joblessness), what do you think the economic consequences would be? Specifically:;
- Do you have any thoughts on how (and why) this might affect the duration and severity of recessions? This is a topic weâ€™ll cover in coming chapters.
- What do you think the long-term implications on the health of the economy would be? Think about what effect this policy would have on workersâ€™ effort level, and therefore productivity over time.
- Finally, would this sort of policy cause any other social problems or issues?
Please use economic reasoning in your response, and include a link to a website or article that passes the CRAAP Test (Links to an external site.) as evidence to support your position. After you respond to the initial prompt, please respond to the post of at least one classmate, and try to convince the individual (and the class) that your position is reasonable.