As American citizens it is important to know the state and welfare of our country’s economy. Part of grasping the concept of our economy is understanding the effects of unemployment on our citizens.
Unemployment is a problem we and our ancestors have been dealing with for centuries. This is why the Great Depression is a necessary subject to be included when initiating a discussion surrounding this topic.
The Great Depression, a devastating time in American history when the unemployment-rate reached approximately 25% from 1929 to 1933, was a time in history no one likes to remember. With nearly 1/4th of the American population unemployed, the economy was crumbling beneath our feet. Hungry children had their ribs outlined on their skin. Scared citizens faced bank failures causing them to scramble to get their money back into their pockets.
Consequently, the citizens of the United States were becoming increasingly more miserable and hopeless. At this time, President Hoover was in office. He urged employers to avoid lay-offs and encouraged those with money to participate in volunteer work, believing the economy would self correct on its own. During Hoover’s Presidency, the Smoot-Hawley tariff act was signed into law, putting tariffs on imports to try and protect American farmers from outside competition. It is speculated that this put even more stress on the American economy by limiting international trade, thus potentially contributing to the skyrocketing unemployment rate.
Following this historical recession was World War II in 1939. WWII brought the country out of its economic pit of despair and created jobs for both men and women to contribute to the war effort, giving the country its much needed economic growth.
After the economic recovery post-WWII, the United States faced another significant recession in March of 2020. Lasting only a few short months, it still had an intense effect on our economy. With the unemployment rate at almost 15%, the economy was struggling, and it created fear for the future. Especially when it came to the homeless. As a result of this recession, many people were forced onto the street. For the first time in history there were more un-sheltered homeless on the streets than those actively being sheltered due to the quarantine. Shelters refused people seeking help because of the limited bed space from social distancing.
Though, similarly to the Great Depression, America came out of its recession suddenly and started on a path toward economic growth and prosperity. However, this change was not due to any war efforts necessary for the nation’s survival. The recovery was largely due to the social shift towards working at home and the intense relief and recovery programs implemented at the time. Currently, we are experiencing economic health and growth, with the unemployment rate at 4.2%, indicating recovery from recent recessions.
But this raises the question, “Can the unemployment rate be too low?”. The answer is highly debated, but in general the answer is yes. In a healthy economy there is always some sort of unemployment rate from people switching jobs, moving cities, being in-between contracts, or getting temporarily laid off. Therefore, meaning that a 0% unemployment rate implies an incredibly inflexible labor market and an inability for citizens to quit when their work situation becomes inadequate or if they want to move on to a better job.
The remedy to this is to find the healthy medium, otherwise known as the “Natural Rate” of unemployment, which means the lowest unemployment rate that is reasonable within a healthy economy. Generally this is around 4%-6%. If the unemployment rate is below this that usually means the economy is overproducing and there is an influx of goods nobody wants or needs. These resources get thrown away and wasted, ending up in landfills and the polluting oceans and rivers.
With this in mind, unemployment still fluctuates in ways that can often be hard to control. There are several reasons that an economy may fluctuate and change; there are four different types of unemployment help to simplify different factors that go into this. Such as frictional, structural, cyclical, and seasonal unemployment. Frictional unemployment is where workers move through the labor force due to short term circumstance. However, structural unemployment is when there is a mismatch between the worker and employer, like job location and skillset. Cyclical unemployment occurs when an economic slowdown leads to layoffs and reduced demand for workers. Seasonal unemployment is much more common, it usually means workers are only needed during certain times of the year. Such as tourist season or during the holidays.
In conclusion, the job market will fluctuate up and down in a free market and is often hard to control or manipulate. Different factors go into what affects the job market and unemployment rate, often resulting in devastating lows followed soaring highs as shown by The Great Depression and Pandemic Recession. As Americans it is important we learn of our history and to look at how it may affect us in our futures. History always leaves its mark, especially on our economy.
