Research Proposal on Unemployment Problem

Involuntary Unemployment

The problem of unemployment traditionally is one of the most significant problems that affects the economic development of countries as well as the social stability. In actuality, even the most developed countries cannot solve this problem and the economic growth does not always guarantee the minimization of the level of the unemployment, though, as a rule, growing economies naturally increase the demand on the labor force. In this regard, it is necessary to distinguish the voluntary unemployment from involuntary one because the former is basically attributed to the individual unemployed workers and their decisions and may exist even in the rapidly progressing economies, while the involuntary unemployment is determined by the socio-economic environment of workers, including the market structure, government interventions, and the level of aggregate demand and this unemployment heavily relies on objective economic factors which do not directly depend on employees. In such a way, taking into consideration the major factors that influence the involuntary unemployment, it would be logical to presuppose that it could be eliminated through the improvement of these factors. In other words, it is necessary to focus on the improvement of the socio-economic environment in which workers operate in order to solve, at least partially, the problem of the involuntary unemployment. In this respect, the increase of aggregate demand, the operation of market forces and prevention of falling prices may contribute to the solution of the problem of the involuntary unemployment.

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On analyzing possible solutions of the problem of involuntary unemployment, it should be pointed out that the increase of aggregate demand and the operation of market forces seem to be the most effective tools with the help of which the level of the involuntary unemployment can be decreased. It is important to underline that the creation of the positive socio-economic environment stimulates the demand on the labor force and decreases unemployment since as economy grows the more labor force is needed. In such a way, the increase of aggregate demand can stimulate the economic growth. It should be said that the aggregate demand implies the total demand for final goods and services in the economy at a given time and price level. This means that the increase of the demand for final goods and services leads to the necessity to increase the production of these goods and services. Naturally, the necessity to increase the production leads to the growing demand for the labor force that results in the decrease of the involuntary unemployment. It is worth mentioning the fact that it is possible to increase aggregate demand with the help of the fiscal policy.

Consequently, the increase of the aggregate demand should be accompanied by the operation of market forces. In other words, the state, which is actually targets at the solution of the problem of the involuntary unemployment, can stimulate the aggregate demand, which satisfaction increases the gross domestic product, and through the operation of market forces the state may also stimulate the growth of economy, including the growth of GDP. At the same time, it should be pointed out that the national fiscal policy as well as the position of the central bank, such as the Federal Reserve in the US, can influence the operation of market forces within the country. To put it more precisely, they can influence the investment/saving equilibrium which, to a significant extent, defines the increase of interest rates and the expansion of economy. At the same time, it is also important to provide the growth of liquidity preference/money supply equilibrium, which growth also produces a positive impact on the economic development of the national economy. The role of central bank can hardly be underestimated in this regard because it is the central bank that can influence the supply of money. Stimulating investments, the state can increase the aggregate demand while the central bank can maintain liquidity preference/money supply equilibrium that contribute to the economic growth and, therefore, decrease of the involuntary unemployment.

However, it is obvious that the role of price is extremely important at this point because the positive effect of the increase of aggregate demand may be lost in case if prices are falling. In actuality, the fall of the existing price level will annihilate the positive impact of the increase of aggregate demand since the revenues of companies will not grow substantially. Consequently, they will not be interested in the decrease of the production while prices are falling, instead they would rather prefer to save instead of investing that naturally leads to the slowdown of economic growth and, therefore, increases the involuntary unemployment.

Thus, in conclusion, it should be said that the measures discussed above, i.e. the increase of aggregated demand, the operation of market forces, and prevention of the fall of prices are closely intertwined and may be determinant factor that can decrease the involuntary unemployment.

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