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Unemployment, an economic problem or a social issue: empirical study.


In recent years the United States along with other industrialized as well as developing nations have been experiencing high unemployment in their economies with specific industries and sectors impacted more than others. Reasons for this high, persistent and long-lasting unemployment have been attributed to both the domestic and the global economic recession. However, could the reason for the high unemployment be the bifurcated result of economic and social issues and the agglomeration of a variety of additional factors impacting the labor force's ability to successfully find and obtain gainful employment? This study examines the factors that contribute to this high and persistent unemployment drawing from multiple sources including economic and social.


The variety of definitions and meanings attached to commonly used terms such as 'employment, 'labor force', 'actively seeking employment', 'employment', 'unemployment', 'marginally attached to the labor force', 'underemployment' and 'humanizing' (the workplace) only increases the probability of their misinterpretation between economists and other social scientists. A clear understanding of these terms is the precursor for the foregoing discussion in this study without dispensing with the way they are used in common language.

The U.S. Bureau of Labor Statistics defines employment as one's eligibility and ability to find and obtain financially gainful employment (BLS, 2014). The labor force consists of both the employed and unemployed who meet the U.S. Department of Labor's requirements. The U.S. Department of Labor's Fair Labor Standards Act (FLSA, 2014)-which sets the wage, hours worked, safety and other requirements- considers someone to be employed if s/he is part of the labor force. One is considered to be part of the labor force if s/he is legally eligible (be 18 years old, a U.S. citizen, or a U.S. permanent resident having authorization to work), is available for work, is full or part-time employed and if unemployed, s/he needs to be actively seeking employment.

Actively seeking employment is defined as being available to work and actively looking for work by contacting public or private agencies, friends or relatives, employers, having interviews, submitting resumes and filling out applications, placing or answering job ads, checking union or professional registers etc. (BLS, 2014). Actively seeking employment is important since passive job search methods (attending a job training program or course, or merely reading about job openings that are posted in newspapers or on the Internet without taking any further action) do not have the potential to connect job seekers with prospective employers and therefore do not qualify as active job search methods.

Employment can be either gainful -when the employee/worker receives financial compensation- or unpaid/volunteer work such as a family member who works and may provide services without compensation or financial gain. One's ability (employability) to find and obtain employment is based on a combination of their education (hard skills) and soft skills. Hard skills are education, experience, and expertise in a specific subject or area within a certain field. Soft skills, which are transferable, are of social nature such as the ability to communicate effectively, working well with others, thinking outside the box, providing leadership, solving problems, possessing cultural competence etc. (Pologeorgis, 2012).

Unemployment, usually expressed as a percentage rate, is measured by the Current Population Survey (CPS) indicating the number of people who although out of a job, they are part of the labor force if they are actively seeking employment. People being seasonally unemployed due to temporary layoffs are counted as unemployed, independent of whether they have engaged in a specific job seeking activity. Unemployment's definition, being imperfect and inadequately capturing the breadth of the labor market, does not account for people who are no longer considered part of the labor force having become discouraged and stopped actively seeking employment. Workers who do not meet BLS's requirements

to be part of the labor force (hold no jobs and are not currently actively looking for work) have become 'Discouraged' because they believe that there are no jobs available or there are none for which they would qualify. Discouraged workers however, are classified as marginally attached to the labor force, if they have demonstrated some degree of labor force attachment such as either shown or expressed the desire to have a job, have looked for work in the last 12 months and are available for work (BLS, 2014).

Investopedia (2014) defines underemployment as lower capacity employment in terms of either, education, experience, expertise, financial compensation, or work-week hours (fewer than 40 hours per week).Underemployment is usually created by a variety of conditions such as lower real wages, firms reducing work hours, firms subcontracting out or intermittent worker lay-offs (Pettinger, 2013). Highly or over-qualified people holding jobs that require lower skills or expertise, limited experience or working at undesired positions, or a combination thereof are considered underemployed. Underemployment results in underutilization of human resources (human capital/labor) and lower productivity, which in turn can lead to either frictional unemployment in the short-term (Investorwords, 2014) or structural unemployment if it persists for a long time.

The term humanizing the workplace refers to making the workplace friendlier, more understandable, more refined and more civilized. This also extends to things pertinent to work, such as company policies and behaviors making them more humane and easier for humans to relate to and appreciate. Humanizing the workplace is also accomplished by placing greater emphasis on keen sensitivity to the human spirit, fostering collaboration toward common goals and avoiding behavior that may cause alienation (Notter & Grant, 2011).


Factors affecting unemployment can be economic or social in nature as well as individual factors which can affect one's employability such as level of education (hard skills), social/soft skills, degree of specialization, use of technology, government intervention and policies, immigration laws, the IRS code and tax laws and the degree of humanization in the work place (employers' treatment and attitudes towards employees).

Economic Factors

Full employment or the natural rate of unemployment (4%--6%) is one of the Fed's three macroeconomic goals and serves as an indicator of a country's economic growth. The frictional and seasonal types of unemployment tend to be short-term with a lesser impact on people and the overall economy while the cyclical and structural types tend to be more serious and have longer-lasting and more devastating effects. Cyclical and structural unemployment impact both the micro and macro-economy growth (GDP). They can be triggered by either poor economic conditions (economic down cycle), organizational restructuring (downsizing), a lack of the labor force's employable skills or a combination thereof. Either type of unemployment can trigger a recession which combined with a global financial crisis can exacerbate a country's economic conditions and subsequently its employment rate. Although the metrics used to measure employment, unemployment and underemployment are far from perfect they still provide a good indication of the state of the economy.

Productivity -measured using labor hours- is also a crucial indicator of progress, GDP growth and creation of wealth. It measures the economic value created given a unit of labor. The relationship between productivity (economic growth) and employment has been very close and those two variables moved in a parallel fashion -almost converging- since labor has always been the driving force behind economic growth. However, in the recent years labor has been substituted and replaced by technology and has been diverging from productivity with an increasing gap, showing an increase in productivity while employment decreases. The relationship of GDP growth and median income also follows a similar pattern showing growth (productivity) soaring and income falling.

Underemployment creates an output/productivity gap, usually referred to as the 'rate of actual output' resulting from comparing the rate of actual output (economic growth/GDP)--as defined by the Congressional Research Service (CRS)- and the rate of potential output growth which is a measure of the economy's capacity to produce goods and services when resources (e.g., labor) are fully utilized (full employment).The number of underemployed people, as reported by the BLS, is derived by comparing two underutilization measures, the national underemployment rate (BLS U-6) with the total unemployment rate (BLS U-3). The BLS U-6 measures the total unemployed, including people marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force.

The BLS U-3 measures the total unemployed, as a percent of the civilian labor force which is also known as the official unemployment rate. The national underemployment rate (BLS "U-6") is far higher than the unemployment rate (BLS "U-3") indicating the output gap in the labor force. Cox (2013), Visiting Professor at the Conservatoire National des Arts et Metiers in Paris and author of 'War on the Dream: How the Anti-Sprawl Policy Threatens the Quality of Life', states that the difference between underemployment and unemployment is calculated by adding the marginally attached workers and workers on part-time schedules for economic reasons.

He further states that "The productivity gap that results from underemployment constrains the U.S. economy at a time of unusually severe financial challenges. College graduates face not only a grim employment market, but have student loan repayments that require good jobs. The nation continues to spend more than it collects in taxes. The inability of state and local governments to fund their government employee pension programs could also lead to much higher taxes or severe service cutbacks"(Cox, 2013). The BLS-reported underemployment and unemployment rates for the years 2011, 2012 and 2013 were the following:

Table 1

Unemployment and Underemployment Rates

Year   Unemployment (U-3)   Underemployment (U-6)

2011          8.9%                 15.9%
2012          8.1%                 14.7%
2013          7.4%                 13.8%

Non-government agencies such as the Gallup estimate the underemployment figures to be even higher as shown in Figure 1 below

These estimates are also consistent with data provided by the Center of College Affordability and Productivity's economists Vedder, Denhart and Robe (2013), who using BLS data estimated that 48% of employed college graduates hold jobs that do not require a college degree.

Specialization aims to increase the efficient and effective use of our scarce resources and it is driven by the economic concepts of opportunity cost, trade-offs and comparative advantage. The level and degree of specialization of labor varies by field and industry type and is impacted by technology. Specialization of labor impacts unemployment through productivity. A highly specialized worker has a much higher productivity in the specific/given field than a generalist and specialization is based on high quality education, training and experience. Research has shown that increases in unemployment benefits reduce the mismatch of talents/skills and raise the degree of job specialization (Amine, Gavrel & Lebon, 2007).

U.S. Trade Policy and Programs (TPP) advances policy objectives by creating new export opportunities for American businesses, farmers, and workers through global, regional and bilateral trade initiatives including free trade agreements (FTAs) such as the North American Free Trade Agreement (NAFTA) and the World Trade Organization (WTO). Examining the impact of trade agreements on the economic growth in the U.S., NAFTA may have helped boost intraregional trade between Canada, Mexico and the U.S. and broaden trade relations creating more competitive supply chains for U.S. manufacturers.

However it has not generated any jobs or provided a deeper regional economic integration its advocates had promised decades ago. Although it is difficult to determine direct causality between NAFTA's implementation and economic growth, there are both positive and negative aspects of NAFTA's impact on the U.S. labor market. There has been a 15 to 20 percent increase on the pay of new export-related U.S. jobs compared to those focusing on domestic production. On the other hand, wages have not kept pace with labor productivity and the income inequality in the U.S. has risen partly due to pressures on the manufacturing base (Sergie, M, 2014). In their article 'Trade Freedom: How Imports Support U.S. Jobs', Scissors, Espinoza and Miller (2012) state that despite conventional wisdom that exports are beneficial and imports are harmful to the economy, costing American jobs, the fact is that imports contribute to job creation on a large scale since the increased economic activity associated with every stage of the import process supports millions of jobs in America. A Heritage Foundation research revealed that over half a million American jobs in transportation, wholesale, retail, construction and finance are supported by imported clothes and toys from China alone.

Social Factors

A social-psychological empirical analysis of employment and unemployment from various disciplines in the social sciences, (Jahoda, 1982) indicate that social and economic inequalities found in people of disadvantaged socioeconomic backgrounds (minority job seekers) reduce equal access to job opportunities due to social barriers, lack of infrastructure to facilitate interstate and intrastate travel, company internal factors such as recruitment policies, and HR policies, employer employment opportunities, affirmative action and special exclusions. Individual factors impacting job seekers are poor money management (maybe due to lacking personal finance education), financial instability, inability to achieve work and life balance, limited resources and financial inability of workers to physically relocate to where the jobs are. Thus they are not afforded the opportunity to move up in social class based on their field of expertise.

Individual Factors

Education is an essential component of economic growth and has made an obvious difference in the lives of those who earned an education. At the same time it is also contentious because it is has been difficult for social scientists to prove a direct cause and effect between education and economic growth. Historically, educational attainment's predictive power has shown that educational investment explains 72% of the variation in years of schooling across countries today indicating that educated parents and teachers tend to produce educated children and societies that invest in schooling have a contemporaneous relationship with various levels of national income. High educational enrollments predict subsequent income growth quite well even when holding past income constant thus rejecting the view that education follows income. The link between level of income and education is real and evidence supports that spillovers from education enables human capital to access better and more advanced technologies. In the U.S. research shows that when holding one's own years of schooling constant, that individual's income earnings increase between 9% and 10% following that if one works around skilled people one will learn more and often at a faster pace (Pologeorgis, 2012).

Schooling is necessary for industrial development by generating specific cognitive, behavioral and social knowledge in a society, which results in increased productivity in a nation's economy. However, some of the questions posed are whether we are training people for jobs that either do not exist, are in low demand or have become obsolete due to technological advancements. At the same time we are not training enough people for high demand/technical skills jobs. If wealth follows productivity does the increased sophistication in technological tools result in a higher income inequality? Does the current system promote limiting the numbers of entrepreneurs leading to a self-imposed restrained growth due to unwillingness to adapt to the new environment and job market as they evolve over time? (Glaeser, 2009). Further, economic research has shown that schooling is a necessary yet not sufficient condition for a spectacular growth in highly industrialized countries since technology seems to be the driving factor (Birschke, 2011).

Viewing employability's components (soft and hard skills) does the current educational curriculum provide a balance between the two since both are necessary for success? It has been found that overtime, the income gap between high school graduates and college graduates has increased while the financial benefits are large enough for college graduates to recoup foregone earnings and the cost of tuition during the college years in a relatively short time frame (Fadel & Miller, 2007). Having an education that warrants a good job is an important factor in seeking, obtaining and maintaining employment however how important a factor is the quality of education? A problem shared by all educational levels and institutions is that in conjunction with the dumbing down of the education curriculum there is a student anti-intellectualism manifesting itself in the form of apathetic, unmotivated, belittling students who resist efforts to educate them. They do not contribute to class discussions, they complain about course loads, number of assignments, about faculty members, they skip class, they give low evaluations to faculty who hold them to higher standards, they neglect preparing for class or homework assignments, they refuse to do extra credit work while boasting how little time they spend studying and ridiculing high achievers etc, (Bum, 2007).

Schools lowering the scope of the curriculum and the scales by which grades are determined (Trout, 1997), teaching to the test and dumbing down both the K-12 and higher education curriculum only leads to catastrophic results with a labor force which cannot communicate well verbally or in writing (McInerney, 2003). An additional factor contributing to unemployment is the high tuition yet low quality education provided by a number of for-profit online institutions, resulting in graduates who cannot find good paying jobs within their given fields once prospective employers realize the job seekers hold diploma-mills degrees which misrepresent the knowledge, experience and expertise reflected by it.

One wonders what is the U.S. Department of Education and the CHEA recognized Accreditation Agencies' role in the educational process if they propagate low quality education by providing their 'stamp of approval' to such institutions. Does the current system also promote limiting the numbers of entrepreneurs leading to a self-imposed restrained growth due to unwillingness to adapt to the new environment and job market as they evolve over time? (Newkirk, 1999). The definition and implementation of "a state education" may also change with more money spent on pre-schooling, since the cognitive abilities and social skills that children learn in their first few years define much of their future potential. Adults will also need continuous education to keep up with the changes in technology, new types of jobs and the global economy (Economist, 2014).

Technology and Innovation has brought great benefits to humanity however, those benefits of technological progress are unevenly distributed, especially in the early stages of each new wave, and it is up to governments to spread them (Economist, 2014).Technological innovations in communication, industrial robots, manufacturing systems and computer design--to mention few- tend to be beneficial to the companies who utilize them however not to their workers. Firms use technology to increase productivity and lower operation costs however often at the expense of labor by eliminating jobs. Automation and technological advances replace people even in the services industries (Hoover, 2014) resulting in displacing the average middle class worker while corporate profits soar (Reich, 2012). Jobs that are impacted by technological advancements also require workers to receive frequent and continuous training to stay current in their fields. Further, additional training tends to be stressful to workers who tend to resist change as part of human nature and the threat of losing their jobs.

The move to automation may also cause chronic unemployment for certain classes or types of laborers unless they change industries or upgrade their skills within their given field, resulting in not only changing the job structures but also altering the employment landscape globally (Taotech, 2012).

The labor force's skills are not keeping up with the rapid advancement of technology, which also triggers job displacement and unemployment. Assessing the true impact of technology is very difficult since there are other factors at play such as changes in consumption patterns and output, global competition, the state of the economy etc. BLS-conducted research seeking to analyze the impact of technology on productivity, employment, occupational requirements and labor-management relations covering a cross section of the economy in industries such as petroleum refining and electronics as well as other key industries indicate the following: the introduction of new technology has increased in pace in both domestic and overseas markets; in general, few employees have been laid off because of technological change; industries that are leading in the adoption of new technology tend to be among those with above-average productivity growth. New technologies are changing occupational structures and measures are taken to facilitate the orderly introduction of new technology such as providing advanced notice to affected workers, coordinating labor adjustment with technical planning, providing employees with new skills associated with the new technology and retrain displaced ones. The pace of technological change also varies by industry and although it tends to displace few workers when introduced, it creates more dislocations and employee transfers to alternate jobs affecting both professional and technical occupations. Further, changes in technology and the distribution of work, reduces the demand for low-skilled labor which is projected to decline.

Changing technology is neither compatible nor conducive to employment growth. Employment has experienced and is expected to undergo various and vast changes in its industrial and occupational structure (Mark, 1987). MIT's Sloan School of Management's Professors Brynjolfsson and McAfee believe that advances in computer technology are the culprits behind the sluggish employment growth of the last 10-15 years. This rapid technological change has been destroying jobs faster that it is creating them resulting in median income stagnation, income growth and inequality in the U.S. as well as other industrialized and technologically advanced countries. Technology may boost productivity increasing societal wealth however at the expense of labor since it eliminates the need for many jobs leaving the workers worse off hence the median income is declining as the GDP is rising (Brynjolfsson & McAfee, 2011).

Another change, with a potentially larger impact on employment, is taking place in the fields of clerical work and professional services. Web technologies, artificial intelligence, large data, and analytics are automating a variety of routine tasks impacting traditional white-collar jobs, which have been disappearing (Rotman, 2013). Improvements in technology dating back in the 1700s, have changed the nature of work and destroyed some types of jobs. In 1900, 41 percent of Americans worked in agriculture; by 2000, it was only 2 percent. Following that trend, the proportion of Americans employed in manufacturing has dropped from 30 percent in the post-World War II years to around 10 percent today--partly because of increased automation during the 1980s (Rotman, 2013).

The January 18th edition of the Economist (2014) states that innovation may kill some jobs, however it also creates new and better ones as a more productive society becomes richer, and its wealthier inhabitants demand more goods and services. In the short run income gaps widen causing social dislocation and changes politics. Over the last three decades the labor's share of output has shrunk while the share of income has been going to the top 1 percent which has grown from 9 percent in the 70's to 22 percent today. Unemployment is at alarmingly high levels globally and not for just cyclical reasons. In the U.S. 65 percent of working Americans were employed compared to the current 59 percent level (Economist, 2014).

The short-run unemployment is primarily the result of artificial imperfections--a lack of competition--in certain labor and product markets. The short-run unemployment created by advancing technology in conjunction with lobbying, are directly related to the degree of artificiality in the particular labor markets that are affected. It can be argued that the workers harmed by technological advancement are those who have been receiving excessive wages they would otherwise receive in a fully competitive labor market. Further, those technology-displaced workers remain unemployed because they seek to regain their former employment without additional training or upgrading of their skills or seek employment in another industry that pays excessive wages (Mabry & Sharplin, 2013).

Government Intervention and Policies

Government intervention in the form of microeconomic policies and social protection (affirmative action) impact both unemployment and the macroeconomy. Specifically, any policies regarding unemployment insurance, minimum wage level, health and safety standards, job security, redundancy pay, hiring and firing rules, union role, etc. It appears that the U.S. government has contributed to unemployment by encouraging the off-shoring of American jobs, promoting mergers, and via macroeconomic policies which have focused on keeping inflation low and with less emphasis on lowering unemployment. These policies have also allowed wealth to be concentrated in fewer hands favoring the very wealthy and well-connected Americans. On the other hand, the struggling middle class has seeing their income shrink to levels lower than the 1970s.

This results in expanding the income inequality to a new, all-time high surpassing levels even during the Great Depression. Waldron (2012) states that according to the Pew Survey, in the '70's, 62% of the U.S. income went to the middle class with wealthier American receiving 29% however, by 2010 the middle class' share of the nation's income shrunk to 45% and since the year 2000 the U.S. middle class income fell from $72,956 to $69,487 and has been falling further ever since widening the gap between middle class and wealthier Americans.

Immigration Laws

Immigration in the U.S. has always been a part of America's melting pot and has played an important role in economic growth. The general consensus is that the U.S. immigration system is flawed and remains one of the most important labor-market issues facing federal policymakers since immigrants comprise more than 12% of the American population. The current system is convoluted and plagued with several issues trying to deal with both legal and illegal immigrants, and the different impact each group has on wages and American jobs. One of the issues that impacts American jobs is whether immigrants compete with U.S.-born workers for the same jobs or they complement each other in the labor market.

The Brookings Institution's Hamilton Project Greenstone and Looney (2013) examined the economics of immigration reform and how immigration has impacted U.S. wages over the last several decades. It found that immigrants bring a diverse skill-set and educational background resulting on improving the standard of living without being a net drain on the Federal Government's Budget, or disproportionately burden U.S. Correctional facilities and institutions. Immigrants also appear to be ambitious and driven, starting new businesses and filing patents at a higher rate than U.S. born citizens. Kugler and Oakford (2013) of the Center for American Progress report that recent economic research has shown that on average, immigrants have a positive impact on wages and employment since they tend to raise wages and expand employment opportunities for Americans. Davidson (2013) in his 'Do Illegal Immigrants Actually Hurt the U.S. Economy' article concludes that the issue with undocumented workers is the fact that they are not evenly distributed which may skew some of the stats however immigrants benefit the overall economy.

Goodman (2014) reported that illegal immigrants benefit the U.S. economy which concurs with over 500 economists who in an open letter to George W. Bush, stated that only a small percentage of U.S. native born workers may be harmed by immigrants however vastly more Americans benefit from immigrant contributions to the U.S. economy which is also reflected in lower consumer prices. A report released by the Department of Homeland and Security (DHS) and published in a Silicon India article (2014) states that of the non-immigrant population in the U.S., 23% of the immigrants come from India which is the second highest-ranked country after Mexico. It also states that Indian immigrants have a stronger English language base and communication skills, as well as higher educational qualifications which allow them to come on employment visas and are granted permanent residency.

Porter (2012) concurs that the perception of immigrants (legal or illegal) displacing Americans from jobs is incorrect since empirical studies time and again find that immigrants have a minimal impact on jobs and overall a positive impact over the long run (Porter, 2012). Greenstone and Looney (2013), of the Hamilton Project (The Hamilton Project seeks to advance America's promise of opportunity, prosperity, and growth) examined how future immigration impacts American wages, using targets recently passed by Senate Bill S.744, found that "Job gains were led by increases in employment in the private service-providing sector, which added 157,000 employees, as they have been since the start of the recovery. In contrast, job gains for employers in goods-producing sectors, including manufacturing and construction, have remained low, and government employment, which has fallen considerably since the onset of the Great Recession, has continued to trend down over the last three months.

The broadest measure of employment--the employment-to-population ratio--remained at 58.7 percent, slightly above its level a year ago, but within the range that has prevailed over the last three years". So far empirical studies dating back over twenty years show three main findings: (i) workers are not in short supply in the U.S., and the decline in work among Americans is very broad impacting high school drop-outs, those with a bachelor's degree and every educational category in between of any age, as well as men, women, blacks, whites and Hispanics alike; (ii) the decline in the share and number of working Americans is consistent with the immigration laws adversely impacting native employment especially in those who are new entrants into the labor force and (iii) large scale immigration does not create job opportunities for Americans (Camarota & Zeigler, 2013).

IRS Code and Tax Laws

Job outsourcing has contributed to both the recession and subsequent unemployment. Companies that outsource jobs have been demoralized, considered un-patriotic and anti-American, yet they reap a number of benefits, some of which are provided by the current U.S. IRS code such as receiving credit for corporate taxes paid to a foreign country (much lower than U.S. tax) which results in a reduction in U.S. taxes by the amount of tax a corporation has paid in the foreign country they do business. Additionally, foreign countries provide incentives for reinvestment overseas thus at least some of the profits made by U.S. companies are directed back in the foreign country (unrepatriated earnings) instead of returning to the U.S. which results in boosting the foreign country's economy and growth (GDP) instead of the U.S. Further, most foreign countries do not have as many employer contributions, unemployment taxes and minimum wages as the U.S. which results in saving payroll taxes for U.S. companies operating outside the U.S. domicile (Bischke, 2011). Off-shore profit shifting is costing the U.S. more than $1.7 trillion in untaxed profits shown as undistributed foreign earnings while the U.S. needs jobs showing high and rising unemployment numbers.

Under the current tax code, the IRS seems to support off-shore profits and investments in foreign countries rather than providing incentives for U.S. corporations to invest at home and hire U.S. workers. (Roberts, 2014). Additionally, U.S. corporations can avoid or reduce their taxes via transfer pricing (Pologerogis, 2011; Oak, 2012). Even the U.S. Government outsources jobs instead of keeping them in-house. Examples of such practices are tasks or projects that are contracted out instead of being assigned to government employees and are usually connected to the public interest and military tasks. The current system supports large corporations providing tax breaks and allowances instead of the smaller size businesses thus shifting the larger tax burden on them. At the same time, Faustman (2013) found that several tax laws, new ones and extensions of older ones are dramatically affecting entrepreneurs in startups and small businesses.

The new tax laws are favoring entrepreneurs starting up or running small businesses and come in various forms such as the Small Business Jobs Act, the Affordable Care Act, the Hiring Incentives to Restore Employment (HIRE) Act, R&D Tax Credit, Bonus Depreciation, and Work Opportunity Tax Credit contributing to the growth of these businesses. Further tax law changes impact the tax brackets increasing the highest level to 39.6% from 35%, the Social Security Tax Rate returns to 6.2% impacting the Payroll tax withholdings (Legislative Updates, 2013).


Unemployment imposes numerous costs in various forms with adverse effects on a nation's domestic economy, its society, and its individuals and with reverberations on the global economy and welfare.

Economic Costs

Unemployment's economic costs are experienced and manifested both at the microeconomic and macroeconomic levels. The microeconomic costs of unemployment are loss or reduced income for anyone who is out of work, financial strain which could lead to personal bankruptcy and loss of one's estate. Employers also experience reduced productivity and a reduction or loss of company profits based on declining product demand. Large size companies are impacted differently (usually less) than smaller ones since they usually have cash reserves and liquidity as well as the ability and the means to outsource jobs -which may lead to increased profits- leaving the smaller ones to bear the brunt of unemployment's detrimental effects. From a macroeconomic perspective, there is loss of tax revenue for the government with a simultaneous increase in government support payments (unemployment compensation), increasing government debt (Soliman, 2005).

Further it does not promote the macroeconomic goal of full employment, which has not been reached for a number of years. Labor's impact of either unemployment or underemployment conditions indicate an underutilization and inefficient use of resources. This leads to a decline in a nation's productivity, lost output of goods and services, lower GDP, deadweight loss of investment in human capital (Infocheese, 2014), increased government borrowing and hysteresis effects. It also results to persistent and high rates of long-term unemployment and the possibility of increasing inflation which may indicate that Demand and supply side policies are ineffective.

Ottosen and Thompson (1996, pp.5) noted that "the United States loses a little less than one percentage point of potential gross domestic product (GDP) or output for each one percentage point of unemployment. This implies that an unemployment rate of 7 percent costs the United States at least $400 billion annually in foregone output. This is more than $2,000 for every man, woman, and child over 16 years of age." Similarly, in Australia, Kenyon (1998) calculated that the loss of GDP associated with an unemployment rate above the full-employment rate is the equivalent of one year's worth of GDP over the past two decades.

Social Costs

From a social perspective, unemployment has negative effects and imposes human costs on individuals, communities and on the society as a whole. Individual effects are loss of earnings, a decrease in a person's morale, self-confidence, self-esteem and self-worth. Further, there are well-documented links to not only economic disadvantages but also to higher crime rates, suicide and homicide (Loungani, 2010). Children of laid-off parents have shown an increased probability of repeating a grade in school, and children of fathers who had been displaced from their jobs had 10% lower annual incomes than similar children whose fathers had not experienced a job loss. Every month past the 6-months benefit period that goes by without finding a job the unemployed person has less than one in ten chance of finding a job compared to one in three chance of someone who has been unemployed less than a month (World Finance, 2011).

Effects on communities are low quality housing, underfunded schools, restricted access to services and public transportation, stress in different populations with most vulnerable groups African-Americans, Latinos, immigrants, people with disabilities, non-college degreed people, and women (Sloane, 2014). Overall effects on the society are citizens with feelings of anger, frustration and despair leading to alcoholism, drug abuse, divorce (Grabmeier, 2011), loss of social contacts and networking, and self-immolation which has triggered social protests and political upheavals in some countries (Economics, 2011).

Additional ill-effects are increased theft and burglary, assault, rape and murder (Economics 2011, Tutor2U, 2014), a growth in inequality and relative poverty within society and erosion of human capital. High unemployment also increases the burden on social welfare programs. These include unemployment insurance programs and other types of welfare, such as food stamps, Medicaid, Medicare, and Supplemental Security Income. There are also intergenerational effects as unemployment of parents limits their capacity to finance the schooling of their children. As education is the primary means of social mobility, this intergenerational effect will give rise to an inheritance of inequality. It is very difficult to place a dollar figure on many of the social costs that unemployment imposes on the individual, his or her family, and society. Given the gravity of the problems created, the cost would seem to be enormous. However, attempts have been made to estimate the economic cost associated with unemployment (Ottosen and Thompson 1996).

Psychological Costs

The psychological effects on families are decline in individual and family well-being, loss of health, higher risk of heart attacks and stress-related illnesses, depression and suicidal behavior which also extends to children. Unemployment has obvious and well-documented links to economic disadvantage and has also been connected to higher crime rates (Cantor and Land 1985; Ottosen and Thompson 1996), especially among the young (Britt 1994), suicide, and homicide (Yang & Lester 1994). Ottosen and Thompson (1996) found that additional consequences of unemployment are increases in the incidences of alcoholism, child abuse, family breakdown, psychiatric hospitalization, and a variety of physical complaints and illnesses. Some researchers have emphasized the importance of preventing youth from falling into unemployment traps.

Gitter and Scheuer (1997, 1999) suggest that unemployment among youth not only causes current hardship, but may also hinder future economic success. This is because unemployed youths are not able to gain experience and on-the-job training and because a history of joblessness signals that the individual may not have the qualities that are valued in the labor market. Unemployment may impair the functioning of families (Liker & Elder, 1983; Barling 1990) by affecting the parents' interactions with their children and the interactions between partners. Although it has been shown that unemployed parents spend more time with their children, the quality of these interactions suffers in comparison with those of employed parents. Unemployment, particularly among male partners, is also likely to lead to major role changes in the home.

For example, whether it is because they have more time or they feel that they have to undertake additional household duties when they are no longer the financial provider for the family, unemployed husbands are more likely to increase their participation in domestic activities (e.g., household tasks, shopping, and meal preparation). In some circumstances, the loss of financial responsibility among husbands may lead to discontent within the marriage: unemployed husbands are more likely to have disagreements and arguments with their spouses than are employed husbands, and this has the potential to lead to spouse abuse and marriage dissolution.

Humanizing the workplace

Although human capital is the most important asset of any organization, employers tend to treat their employees poorly, disrespectfully and often inhumanely, creating pervasive discontent, low employee morale, lack of loyalty and subsequently high employee turn-over which tends to increase business costs (Brynjo;fsson & McAfee, 2011). Is ideologically correct that people should be at the center of a human ecosystem instead of being boxed into a mechanical system? Employees bring an array of values to an employer and work environment and those values if and when leveraged correctly they can become a strong driving force for businesses to grow and flourish. Employee values when appropriately harnessed by combining individual strengths and skills coupled with agility, have a synergetic effect which not only can maximize the value of human capital but also be instrumental in business growth and business value (Washington's Blog, 2014).

Further, as times evolve, changes in family and work environments require humanizing the workplace, enhancing women's opportunities in the workplace and equalizing their pay which is not only a social issue but also an economic imperative (Murphy, 1990). Thus, for companies to reach higher levels of productivity they have to provide initiatives that unleash their employees' human potential by cultivating stronger bonds, closer relationships and show their employees that they truly care about them. A change is needed in the business/employer mentality that people are tasks and business needs are the same as personal needs. Innovation is not humanization when technology replaces human capital (Altman, 2012).


Any possible limitations that may exist would be inherent in the pertinent terms used in this study. This is based on the subjective nature and the way they were defined, interpreted and used, thus they should not be excluded.


A similar research study may be conducted in the near future to re-examine the potential impact on unemployment at national and global levels of any changes of existing or new laws or regulations in the areas of immigration, corporate taxation and higher education.


Unemployment is both an economic and a social problem, not limited to one country rather of global magnitude, with pernicious effects on all its constituents and stakeholders at local, national and international levels. Inability to find gainful employment imposes serious economic, financial, social and psychological costs on individuals, societies and domestic and global economies. The issue is multifaceted and its solution requires a comprehensive approach. Is unemployment as well as underemployment beyond economics, rather politics, corrupt political systems and class warfare having the very wealthy trying to prevail and impose their collective wills on the masses using capitalism and conservatism as reasons to justify their actions and drives? Should higher education institutions do a better job educating learners with curriculum and courses that are current and provide adequate rigor preparing their students for local, national and global labor markets, but also providing high quality venues aligned with their graduates' fields of expertise to ascertain gainful employment upon graduation?


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Nicolas A. Pologeorgis

Shepherd University

Nicolas Pologeorgis is a university professor with expertise in the areas of Business Administration, Economics, Finance and Financial Planning. Prior to embarking on his long academic career, Dr. Pologeorgis worked for 10 years in the Financial Services Industry providing Financial Planning, Business Consulting and Financial Consulting, and pertinent financial products, services, and investment vehicles to serve client needs. He is also the President and Lead Consultant of the Center for Assessment, Evaluation, Education and Research providing consultative services to academic institutions of higher education.

Table 1
Unemployment and Underemployment Rates

Year   Unemployment (U-3)  Underemployment (U-6)

2011         8.9%                15.9%
2012         8.1%                14.7%
2013         7.4%                13.8%

Non-government agencies such as the Gallup estimate the
underemployment figures to be even higher as shown in Figure 1
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Author:Pologeorgis, Nicolas A.
Publication:International Journal of Business and Economics Perspectives (IJBEP)
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Geographic Code:1USA
Date:Sep 22, 2014
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