Cyclical Unemployment Economists Overstating Cyclical Unemployment Rate Essay

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Cyclical Unemployment

economists overstating cyclical unemployment rate understating natural rate?

Are economists overstating the cyclical unemployment rate and understating the natural rate?

Cyclical unemployment derives its name from the fact that it reflects the 'cyclical' ebbs and flows of the business cycle (Ask an economist, 2008, Labor Market Info). When the economy is doing poorly, workers are let go and are involuntarily unemployed. Although the contraction may begin within one economic sector, eventually most spheres are affected as people spend less money, causing production to slow and more workers to be laid off. As the economy improves, production increases, more workers are hired and more workers spend money.

However, other types of unemployment exist that are not directly related to the business cycle called 'natural' unemployment. "Frictional unemployment refers to workers who are temporarily without jobs and searching for new ones that are better suited to their skill sets and work preferences... Structural unemployment refers to unemployment that occurs when a changing economy creates a mismatch between the skills and qualifications of workers looking for jobs and the jobs that are available" (Ask an economist, 2008, Labor Market Info).

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There are clear signs that there is a discrepancy between workers skill sets and employer's current needs. This suggests that the unemployment rate is due to structural variables.

For example: "a survey of 1,123 manufacturing executives released last year found that 67% of companies had a moderate to severe shortage of available, qualified workers. The report estimated 600,000 jobs nationwide were going unfilled because of a lack of qualified candidates" (Coyne 2012). Low-skilled manufacturing jobs are being outsourced or are now able to be performed with technology. Only low-paying jobs on the retail level that do not pay a living wage are left "or professional jobs that require specific technical skills with too few people to fill them" (Hasham 2012). A good example is that of the healthcare sector -- while the shortage of nurses has been somewhat delayed by workers putting retirement on hold in the face of a weakening economy, there is still a critical and unfulfilled need for nurses and also nursing educators to train new nurses. This is troubling, given that fewer nurses can lead to poorer care of patients. There is also a shortage.....

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