The Problem of Unemployment in the UK

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The problem of unemployment is one of the most serious long-term

economic problem challenges in the past decades. Unemployment is a

major cost to the economy not just in the terms of lost production,

but it also involves major, long-term social cost such as increased

inequality, poverty, family problems, crime and social division.

One of the major economic debates of recent decades has been what

should be done in order to reduce unemployment. There are major

differences of opinion among economists about both what has caused the

increasing level of unemployment during recent years, and what

policies that might be used to reduce unemployment in the years to

come. There are many explanations and arguments offered by economists,

including:

- Wage rates are too high

- Job losses are an inevitable result of new labour saving technologies.

- People do not have the opportunities for training and education.

- Economic growth is too low to generate adequate employment growth.

- Employees in developed countries cannot match the low paid people in developing countries.

- The labour market is over-regulated, which provides an incentive for employers not to hire.

- Many people are voluntary unemployed.

Governments all over the world struggle in order to achieve sustained

reduction in unemployment. A variety of strategies have been used over

the last two decades, with mixed success.

Unemployment is caused by a range of short and long-term factors:

The level of economic growth:Unemployment is closely related with the

overall level of economic growth. It is generally felt that

unemployment starts rising when growth is around 3% or lower. On the

other hand, when growth is around 4% or higher the level of

unemployment falls. Generally a change in the level of economic growth

takes a period of around six months to influence the level of

unemployment. the slowdown in economic growth between 1995 and 1997

contributed to unemployment drifting upwards in the 9% range, while

faster economic growth between1997 and 2000 brought it back down to

7%. The government has argued that to make significant progress on

unemployment, Australia must sustain annual economic growth of 4% or

more, indicating that unemployment unlikely to fall in 1999 - 00,

given its estimate of 3% growth in this period.

The stance of macroeconomic policies:The government's macroeconomic

policy settings can influence the level of unemployment in the short

to medium term, through their influence on the business cycle. Between

1992 and 1994 the Government had an expansionary macroeconomic policy,

with large budget deficits and low interest rates, which were intended

to boost economic activity and lower unemployment. the impact of these

policies was felt through a substantial lift in economic activity by

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