Types of Unemployment in the USA and Policies to Overcome Them

This report analyses the primary types of unemployment prevailing in the economy of the USA in the contemporary period, thereby discussing the monetary and fiscal policies which the government of the country can implement in order to combat the concerned problems of unemployment in the contemporary period.

Running head: MACROECONOMIC ASSIGNMENT
Macroeconomic Assignment
Name of the Student
Name of the University
Author Note

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Table of Contents
Introduction................................................................................................................................2
Types of unemployment.............................................................................................................2
Types of Unemployment in the USA.........................................................................................3
Policies to overcome unemployment problems.........................................................................6
Monetary Policy.....................................................................................................................6
Fiscal Policy...........................................................................................................................7
Conclusion..................................................................................................................................8
References................................................................................................................................10

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Introduction
The progress of a country and its overall welfare depends on the social, political,
economic and other aspects. The economic conditions of a country and its performance over
time depends on different economic indicators and their dynamics over the years. These
indicators primarily include those of the growth rate of the Gross Domestic Product, the rate
of inflation, the unemployment rate and other similar attributes of immense significance
(Mankiw, 2014).
Of these economic indicators of welfare, the unemployment rate prevailing in a
country holds immense significance as it shows the level of economic abundance of the
people of the country and the general productive scopes and employment scenarios and
threats in this aspect (Agénor & Montiel, 2015). Keeping this into consideration, the
concerned report tries to analyse the primary types of unemployment prevailing in the
economy of the USA in the contemporary period, thereby discussing the monetary and fiscal
policies which the government of the country can implement in order to combat the
concerned problems of unemployment in the contemporary period.
Types of unemployment
In the generalised framework, there are different types of unemployment, which occur
in the economies in the global framework, the primary ones being as follows:
Frictional Unemployment- This form of unemployment occurs in the time period of
transitions of workers from one job to another.
Cyclical Unemployment- The unemployment which occurs in an economy due to the
economic downturns and phases in the business cycle of the economy falls under this
category (Heijdra, 2017).

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Structural Unemployment- This is a more serious and long-term unemployment which
generally occurs due to structural changes in the economy, like that of decline of old types of
industries, development of new industries with changed labour demand and long-term
changes in the market conditions.
Seasonal Unemployment- The unemployment which arises generally in the industries which
produce and supply at certain points of the years (Bernal-Verdugo, Furceri & Guillaume,
2012).
Voluntary and Involuntary Unemployment- The people in the labour force can stay
unemployed willingly, which in known as voluntary unemployment. On the other hand, when
the people, eligible as well as willing to do a job, remain unemployed in an economy, then
this phenomenon is known as involuntary unemployment.
Natural Rate of Unemployment- This is the level of unemployment in the economy which
occurs due to the supply-side factors of the country and its normal to be present in the
country.
Types of Unemployment in the USA
The globally dominant economy of the United States of America has over the years,
experienced different types of unemployment in different periods of time, depending upon
the situations arising in the economy of the country, attributed to both exogenous as well as
endogenous factors influencing the economy of the country as a whole. The cumulative rate
of unemployment of the country, over the years, can be seen to be as follows:

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Figure 1: Rate of Unemployment in the USA (2000-2018)
(Source: Tradingeconomics.com, 2018)
As is evident from the above figure, the rate of unemployment in the country can be
seen to be increasing sharply (to nearly 10%) in 2008-2009, during the period of the Global
Financial Crisis, post which the rate can be seen to have decreased steadily, although in the
contemporary periods, the same can be seen to be nearly 4%, which denotes the presence of
considerable unemployment related issues in the country in the present periods.
The different types of unemployment in the USA, which can be found to be primarily
prevailing in the economy of the country over the years can be discussed as follows:
Structural Unemployment- This form of prolonged and hard-core unemployment could be
seen in the country, especially during and post the period of Great Depression and also in the
times of the Global Financial Crisis (2007-2009), when the lack of economic productivity and
changes in the businesses policies led to huge loss of the existing job scopes and the same
resulted in prolonged unemployment of a major share of the eligible work-force population of
the country (Riumallo-Herl et al., 2012).

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Frictional Unemployment- This type of unemployment is highly common in the economy of
the concerned country, with the participants in the labour force of the country consistently
changing and shifting jobs, thereby remaining unemployed for small spans in the transition
periods.
Natural Rate of Unemployment- The natural rate of unemployment, in the USA, can be seen
to have increased from historic rate of 5% to nearly 6.7% as per the estimates of the Federal
Reserves, the monetary authority of the country (Fountoulakis et al., 2013).
Cyclical Unemployment- Currently, the type of unemployment which can be seen to be
primarily prevalent in the economy of the USA, is that of cyclical unemployment. As can be
seen from the pattern of job loss in the country in the recent period, nearly 438,000 jobs have
been lost in the recent years, most of which can be seen to be from the construction and
manufacturing sectors of the country, which in turn have been affected by the economic
slowdown which the USA has been facing in the recent years.
These trends match with the cyclical form of unemployment which arises due to the
dynamics in the business cycle in the country:

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Figure 2: Different phases of Business Cycle
(Source: As created by the author)
The downturns, signified by recessionary and stagnation situations leads to job losses,
which are mostly temporary in nature and are recovered once the economy comes out of the
economic downturn, as can be seen to be the scenario of the USA in the contemporary period
(Larsen, 2013).
Policies to overcome unemployment problems
The problems of unemployment, experienced by the economy of the USA, can be
addressed with the help of different economic policies (both monetary and fiscal) by the
governing authorities of the country:
Monetary Policy
Unemployment can be reduced with the help of expansionary monetary policies in the
form of increase in the supply of money. By decreasing the rate of interest, the monetary
authority of the country can stimulate the increase in borrowings for investment as well as

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consumption purpose, which in turn can lead to stimulate the aggregate demand in the
country:
Figure 3: Effects of expansionary monetary policy
(Source: As created by the author)
As can be seen from the above figure, this decrease in the rate of interest can help in
increasing investment through increased borrowings, which in turn can help in increasing the
aggregate demand and supply which in turn raises the Real GDP (Wu & Xia, 2016). The
increasing productivity is also expected to increase the demand for workers by the businesses,
which in turn can increase the employment as a whole, in the country.
Fiscal Policy
Apart from monetary policies, expansionary fiscal policies like that of increase in
government spending or decrease in tax rates can help in increasing the economic abundance
of people, thereby increasing their aggregate demand which in turn can help in increasing the
aggregate supply in the country:

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Figure 4: Effects of expansionary fiscal policy
(Source: As created by the author)
This in turn can result in the increase in the productive scopes, which in turn can lead
to an increase in the demand for workers, thereby decreasing the problems of unemployment
in the country, by overcoming the stagnate situation or economic slowdown which the
concerned country has been facing in the contemporary periods (Rendahl, 2016).
Conclusion
From the above discussion, it can be concluded that the problem of unemployment is
a persistent one in the contemporary period, in the otherwise developed and dominating
economy of the USA and although different types of unemployment exist in the country in
different periods of time, in the recent couple of years, cyclical unemployment is most
commonly prevalent in the concerned country, mostly because of the phase of economic
downturn in the business cycle of the country. The government and the monetary authority of
the country can take expansionary monetary as well as fiscal policies in order to reduce the

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problem of unemployment by increasing the economic and industrial activities in the
economy, thereby taking out the economy from the situation of stagnation and downturn,
creating new job scopes for the population.

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References
Agénor, P. R., & Montiel, P. J. (2015). Development macroeconomics. Princeton University
Press.
Bernal-Verdugo, L. E., Furceri, D., & Guillaume, D. (2012). Labor market flexibility and
unemployment: new empirical evidence of static and dynamic effects. Comparative
Economic Studies, 54(2), 251-273.
Fountoulakis, K. N., Koupidis, S. A., Siamouli, M., Grammatikopoulos, I. A., &
Theodorakis, P. N. (2013). Suicide, recession, and unemployment. The
Lancet, 381(9868), 721-722.
Heijdra, B. J. (2017). Foundations of modern macroeconomics. Oxford university press.
Larsen, C. A. (2013). The rise and fall of social cohesion: The construction and de-
construction of social trust in the US, UK, Sweden and Denmark. Oxford University
Press.
Mankiw, N. G. (2014). Principles of macroeconomics. Cengage Learning.
Rendahl, P. (2016). Fiscal policy in an unemployment crisis. The Review of Economic
Studies, 83(3), 1189-1224.
Riumallo-Herl, C., Basu, S., Stuckler, D., Courtin, E., & Avendano, M. (2014). Job loss,
wealth and depression during the Great Recession in the USA and
Europe. International journal of epidemiology, 43(5), 1508-1517.
Tradingeconomics.com. (2018). United States Unemployment Rate | 1948-2018 | Data | Chart
| Calendar. Retrieved from
https://tradingeconomics.com/united-states/unemployment-rate

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Wu, J. C., & Xia, F. D. (2016). Measuring the macroeconomic impact of monetary policy at
the zero lower bound. Journal of Money, Credit and Banking, 48(2-3), 253-291.