The Causes and Effects of Unemployment

This assignment delves into the complex issue of unemployment. It examines various causes of unemployment, including structural, cyclical, and frictional factors. The assignment also analyzes the multifaceted effects of unemployment on individuals, such as financial hardship, reduced well-being, and social inequality. Furthermore, it explores the broader economic consequences of unemployment, including decreased productivity, lower consumer spending, and government budget deficits. By understanding the causes and effects of unemployment, this assignment aims to shed light on its impact on societies worldwide.

Running Head: Capitalism, Employment Issues and Wage Rates
Capitalism, Employment Issues and Wage Rates
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Capitalism, Employment Issues and Wage Rates 2
Capitalism, Employment Issues and Wage Rates
Capitalism Impacts on Inequality
Capitalism is a situation where the rich and the poor are not governed by one rule; the
groups makes their own decision that are not regulated by the state (Hodgson, 2017. The post-
industrial capitalist world has led to the increased growth on inequality. This growth is not
politics based nor can it be reversed by politics. Capitalist activities are the major drivers of the
alarming inequality – the increased equality of opportunities is accelerating it. This is because
families, individuals and communities are different; there are richer and poor families. The
ability of a richer family to grab and exploit a presented opportunity for advancement and
development is higher and fast. The poor parties may be having less resources or even means to
grab such an opportunity and thus are left behind and the inequality expands.
The major contributor of the expanding inequality according to Muller (2013) is the
expanding of access and opportunity for the capitalists combined with the advancement in
technology and economic changes. Capitalist however has opened up many development
opportunities for the human potential; the problem is only that many people have not been able
to take advantage of these opportunities (Rasmussen, 2016). Others have taken advantage but
have not been able to progress far. There are many sectors of population whose equality of
opportunity have been historically blocked by either the formal or informal barriers which
prevents them from fully benefiting from the offerings of capitalism; the most affected group is
the poor people, women and the minorities (Tridico, 2017). However, according to Muller
(2013), these barriers have been gradually lowered or removed in the advanced capitalist world
over time. The elimination has ensured that opportunities are available to all on an equal basis.
The present existing inequality is argued to derive more from the inability of some group to
exploit and opportunity but not on the lack of equal opportunity.
The unequal ability has many origins depending on the inherent human potential, how
communities and families encourage and enable the potential to flourish. Inequality under
capitalism can therefore be attributed to differences in skills and talents; but this doesn’t explain
much. In the capitalism societies, the inequality of wealth is mostly as a result of inequality of
inheritance (Hodgson, 2017). This inequality in wealth causes differences in income, economic
power and education. The differences on the availability of collateralizable assets is also a factor
behind inequality under capitalism, a wealthy person will always use the owned wealth to make

Capitalism, Employment Issues and Wage Rates 3
profit and run ahead of the one without. The rich have collateral but the poor have no collateral
to obtained loans from banks.
The Difference between Unemployment and Underemployment in Poor and Rich Countries
Unemployment is a condition where the active job seekers are having no jobs (Pasquali,
2015). On the other hand, underemployment is a condition where people are engaged in jobs that
are meaningless or a few-hour job while they would like to have a full time job (Rw.one.un.org,
2016). The unemployment and underemployment rate goes hand on hand, a reduction in
unemployment rate also results in a reduction in the underemployment rate. The government
reports only the unemployment rate but not the underemployment rate. The unemployment rate
and the underemployment rate are difference for the rich and the poor countries. However, the
differences are related to the causes and the duration in which the unemployment state takes
place. For the rich countries, the unemployment is caused by cyclical causes. Cyclical
unemployment may be in the short run depending on the policies implemented by the
government’s policy makers to control the situation. The poverty level is related to the high
unemployment rate. For the rich countries, their main goal is to lower the poverty level, thus,
they always target a low unemployment rate since they believe that high unemployment rate is
associated with increased poverty level. This reason explains why there is low unemployment
rates for the rich economies. The rich economies have high level of investment and thus there is
a high rate of jobs creation. The availability of jobs explains the existence of low
underemployment rate for the rich economies; when there are many jobs in which one can
engage into, there is no chance for a worker doing a meaningless or a part-time job.
According to Guru (2016), the nature of unemployment in poor economies is chronic and
long-term. Unemployment in the poor countries is not as a result of aggregate demand shortage.
It is as a result of inadequate resources of production; the capital, land, and other complementary
resources are inadequate for the whole population and the labor force. This explains why there is
high unemployment rate in the poor economies. This kind of unemployment is not easily
lowered by the stimulation of aggregate demand as is the case for rich economies. The poverty
level is high; due to less production level and thus low demand for workers, the job seekers are
force to engage in meaningless jobs just to earn a little income. This also explains why the
underemployment rate is also very high in poor economies. Keynes argued that the aggregate
demand for the poor nations is never sufficient to boost its unemployment status.

Capitalism, Employment Issues and Wage Rates 4
Why workers’ working hours are longer but wages are lower
One of the reason for the existence of low wages but longer working hours is that most of
the workers do not have sufficient skills. The rate is tied to the level of skills held by the
workers; the highly skilled workers receive high compensation despite their shorter working
hours. Other than the level of skills, the unemployment rate also plays part. Many economies in
the world are struggling with the issue of unemployment rate being very high; this means that
many citizens in every country do not have a job. Thus the supply of labor is very high; this
lowers the incentive of the employers to raise the wage rate for their employees.
Fig: Demand and Supply for labor
Wage rate
S* S1
W*
W1
D
Q* Q1 Number of Workers
Since there are fixed labor hours, only the wage rate varies. Initially at the equilibrium
number of workers Q*, the wage rate was W* and the supply curve was S*. The increased
unemployment rate raises the supply for labor to S1. The equilibrium wage now falls to W1.
Since the labor hours remain constant, the workers have to work for the original number of hours
at a lower wage rate. In most cases, the wage rate doesn’t fall since laborers do not accept wage
cuts, but it remains at the same level for long without increment. Cutting of wages could also
affect the employee’s productivity as they wouldn’t be comfortable to wake up one day and be
informed that their salary has been slashed. C.W (2015) noted that the high unemployment rate
prevents the employees from demanding for wage increment; he noted that the employees would
prefer pushing for extra working hours than higher wage. This is self-explanatory of the factor
behind wage being so low but the working hours extended.
According to Moodie (2016) the increased economic inequality has contributed to longer
working hours. Some workers in the labor market feel so financially insecure in their jobs; they

Capitalism, Employment Issues and Wage Rates 5
thus end up working for longer hours to impress their bosses. There is also lack of proper laws
governing the labor market. For instance, a person may prefer working for many hours at a lower
wage rate that few hours at a higher rate. In the case of minimum wage legislation, the wage rate
rises but employers cut the working hours and thus no gain to the employees. McClelland (2013)
noted that lack of a job leaves one with no option but to accept a low-wage rate job.

Capitalism, Employment Issues and Wage Rates 6
References
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Guru, S. (2016). The Nature and Causes of Unemployment in Developing Countries.
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unemployment-in-developing-countries/37830/.
Hodgson, G. (2017). How Capitalism Actually Generates More Inequality. Evonomics. Retrieved
4 October 2017, from http://evonomics.com/how-capitalism-actually-generates-more-
inequality/.
McClelland, E. (2013). The “middle class” myth: Here’s why wages are really so low today.
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Capitalism, Employment Issues and Wage Rates 7
unemployment-and-underemployment-challenges-%E2%80%93-what-have-we-learnt-
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Retrieved 5 October 2017, from
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Tridico, P. (2017). Inequality in Financial Capitalism. Florence: Taylor and Francis.